5. Project Final

8/8/2019 5. Project Final

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1)INTRODUCTION

Investment in share markets are influenced by the analysis & reasoning which help in

predicting the market to some extent. Over the past years a number of techniques & theoriesfor analysis have evolved, these combined with modern technology guides the investor. The

big players in the market, like Foreign Institutional Investors, Mutual Funds, etc. have the

expertise for various analytical tools & make use of them. The small investors are not in a

position to benefit from the market the way Mutual Funds can do. Golaghat is not a very

commercially developed area and is still in the developing mode. So, there is enough scope

for mutual funds to capture the market. Generally, here investors investments are based on

market sentiments, inside information, through grapevine, tips & intuition. The small

investors depend on brokers and brokerage house for his investments. There is enough scope

on the part of these brokers to learn the movements of the market which leave their clientsinvestments too in danger, so there is a need of expertise in the field from the big managers.

These small investors can invest through the Mutual Funds who are more experienced and

expert in this field than a small investor himself.

In recent years, a large number of players have entered into this market. The project has

been carried out to have an overview of Mutual Fund Industry and to understand investors

perception about Mutual Funds in the context of their trading preference, explore investors

risk perception & find out their preference over the various schemes.

1.1 INDUSTRY PROFILE

Structure oftheIndianMutualFundindustry

The largest categories of Mutual Funds are the ones floated by the private sector and by

Foreign Asset Management Companies. The largest of these are Prudential ICICI AMC and

Birla Sun Life AMC. The aggregate corpus of assets managed by this category of AMCs is in

excess of Rs.350 billion. Earlier the Indian Mutual Fund industry was dominated by the Unit

Trust of India which has a total corpus of Rs.700 billion collected from more than 20 million

investors. UTI was floated by financial institutions and is governed by a special Act of

Parliament. The second largest categories of mutual funds are the ones floated by

nationalized banks. SBI Funds Management floated by the State Bank of India is the largest

of these. GIC AMC floated by the General Insurance Corporation and Jeevan Bima Sahayog

AMC floated by the LIC are some of the other prominent ones. The aggregate corpus of

funds managed by this category of AMCs is about Rs.200 billion.


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2)ABOUTMUTUALFUNDS

A Mutual Fund is a trust that pools the savings of a number of investors who share acommon 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 is 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. The flow chart below describes broadly the

working of a mutual fund.

2.1) WHY MUTUALFUNDS

An investor normally prioritizes his investment needs before undertaking an

investment. So, different goals will be allocated in different proportions of the total

disposable amount. Investments for specific goals normally find their way into the debt

market as risk reduction is of prime importance. This is the area for the risk-averse investors

and here, mutual funds are generally the best option. The reasons are not difficult to see. One

can avail of the benefits of better returns with added benefits of anytime liquidity by

investing in open-ended debt funds at lower risk. Many people have burnt their fingers by

investing in fixed deposits of companies who were assuring high returns but have gone bust

in course of time leading to distraught investors as well as pending cases in the CompanyLaw Board.

This risk of default by any company that one has chosen to invest in, can be minimized

by investing in mutual funds as the fund managers analyze the companies financials more

minutely than an individual can do as they have the expertise to do so. They can manage the

maturity of their portfolio by investing in instruments of varied maturity profiles. Since there

is no penalty on pre-mature withdrawal, as in the cases of fixed deposits, debt funds provide

enough liquidity. Moreover, mutual funds are better placed to absorb the fluctuations in the

prices of the securities as a result of interest rate variation and one can benefits from any such

price movement.

Apart from liquidity, these funds have also provided very good post-tax returns on year

to year basis. On an average debt funds have posted returns over 10 percent over one-year

horizon. The best performing funds have given returns of around 14 percent in the last one-

year period. Though they are charged with a dividend distribution tax on dividend payout at

10 percent with a surcharge of 10 percent, the net income received is still tax free in the

hands of investor


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This risk of default by any company that one has chosen to invest in, can be minimized

by investing in mutual funds as the fund managers analyze the companies financials more

minutely than an individual can do as they have the expertise to do so.

They can manage the maturity of their portfolio by investing in instruments of varied

maturity profiles. Since there is no penalty on pre-mature withdrawal, as in the cases of fixed

deposits, debt funds provide enough liquidity. Moreover, mutual funds are better placed to

absorb the fluctuations in the prices of the securities as a result of interest rate variation and

one can benefits from any such price movement.

Next comes, the risk takers, risk takers by their very nature, would not be averse to

investing in high-risk avenues. Capital markets find their fancy more often than not, because

they have historically generated better returns than any other avenue, provided, the money

was judiciously invested. Though the risk associated is generally on the higher side of thespectrum, the return-potential compensates for the risk attached.

Capital markets interest people, albeit not all for there are several problems associated.

First issue is that of expertise. While investing directly into capital market one has to be

analytical enough to judge the valuation of the stock and understand the complex undertones

of the stock. It is very difficult for a small investor to keep track of the movements of the

market. Entrusting the job to experts, who watch the trends of the market and analyze the

valuations of the stocks will solve this problem for an investor.

Next problem is that of funds/money. A single person cant invest in multiple high-priced stocks due to lack of adequate funds. This limits him from diversifying his portfolio as

well as benefiting from multiple investments. Here again, investing through MF route enables

an investor to invest in many good stocks and reap benefits even through a small investment.

This not only diversifies the portfolio and helps in generating returns from a number of

sectors but reduces the risk as well. Though identification of the right fund might not be an

easy task, availability of good investment consultants and counselors will help investors take

informed decision.

2.2) How aretheMutualFundsStructured?

The Mutual Funds are structured in two forms: -

y CompanyForm: - These forms of mutual funds are more popular in US.

y Trust Form: - In India, mutual funds are organized as Trusts. The Trust is either

managed by a Board of Trustees or by a Trustee Company. There must be at least 4

members in the Board of Trustees and at least 2 / 3 of the members of the board must


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be independent. Trustee of one mutual fund cannot be a trustee of another mutual

fund.

2.3 UnitTrusts Constituents: -

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

1. Fund Sponsor

2. Asset Management Company

3. Other Fund Constituents: -

3.1. Custodian and Depositors

3.2. Brokers

3.3. Transfer Agent

FundSponsors

What a promoter is to a company, a sponsor is to a mutual fund. The sponsor initiatesthe idea to set up a mutual fund. It could be a financial services company, a bank or a

financial institution. It could be Indian or foreign. It could do it alone or through a joint

venture. In order to run a mutual fund in India, the sponsor has to obtain a license from SEBI.

For this, it has to satisfy certain conditions, such as on capital and profits, track record (at

least five years in financial services), default-free dealings and a general reputation for

fairness. The sponsor must have been profit making in at least 3 years of the above 5 years.

The sponsor appoints the trustees, custodian and the AMC with the prior approval of SEBI

and in accordance with SEBI regulations. Like the company promoter, the sponsor takes big-

picture decisions related to the mutual fund, the sponsor should inspire confidence in you as a

money manager and, preferably, be profitable. Financial muscle, so long as it is

complemented by good fund management, helps, as money is then not an impediment for the

mutual fund- it can hire the best talent, invest in technology and continuously offer high

service standards to the investors.

Trustees

Trustees are like internal regulators in a mutual fund, and their job is to protect the

interests of the unit holders. Trustees are appointed by the sponsors, and can be either


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individuals or corporate bodies. In order to ensure they are impartial and fair, SEBI rules

mandate that at least two-thirds of the trustees be independent, i.e., not have any association

with the sponsor. Trustees appoint the AMC, which subsequently, seeks their approval for the

work it does, and reports periodically to them on how the business being run. Trustees float

and market schemes, and secure necessary approvals. They check if the AMCs investments

are within defined limits and whether the funds assets are protected. Trustees can be heldaccountable for financial irregularities in the mutual fund.

AssetManagementCompany (AMC)

An AMC is the legal entity formed by the sponsor to run a mutual fund. The AMC is

usually a private limited company in which the sponsors and their associates or joint venture

partners are the shareholders. The trustees sign an investment agreement with the AMC,

which spells out the functions of the AMC. It is the AMC that employs fund managers and

analysts, and other personnel. It is the AMC that handles all operational matters of a mutual

fund i.e. from launching schemes to managing them to interacting with investors.

There is the head of the fund house, generally referred to as the Chief Executive Officer

(CEO). Under him comes the Chief Investment Officer (CIO), who shapes the funds

investment philosophy, and fund managers, who manages its schemes. They are assisted by a

team of analysts, who track markets, sectors and companies. Although these people are

employed by the AMC, its the unit holders, who pay their salaries, partly or wholly. Each

scheme pays the AMC an annual fund management fee, which is linked to the scheme size

and results in a corresponding drop in your return. If a schemes corpus is up to Rs.100

Crores, it pays 1.25% of its corpus a year. So, if a fund house has two schemes, with a corpus

of Rs.100 Crores and Rs.200 Crores respectively, the AMC will earn Rs.3.25 Crores (1.25+2)

as fund management fee for that year.

Regulatoryrequirements fortheAMC:

Only SEBI registered AMC can be appointed as investment managers of mutual

funds.

AMC must have a minimum net worth of Rs.10 Crores at all times.

An AMC cannot be an AMC or Trustee of another Mutual Fund.

AMCs cannot indulge in any other business, other than that of asset management

At least half of the members of the Board of an AMC have to be independent.


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The 4th

schedule of SEBI Regulations spells out rights and obligations of both trustees

and AMCs.

Custodian& Depositors: -

A custodian handles the investment back office of a mutual fund. Its responsibilities

include receipt and delivery of securities, collection of income, distribution of dividends and

segregation of assets between the schemes. It also track corporate actions like bonus issues,

right offers, offer for sale, buy back and open offers for acquisition. The sponsor of a mutual

fund cannot act as a custodian to the fund. This condition, formulated in the interest of

investors, ensures that the assets of a mutual fund are not in the hands of its sponsor. For

example, Deutsche Bank is a custodian, but it cannot service Deutsche Mutual Fund, its

mutual fund arm.

Brokers

Role ofBrokersinaMutualFund: -

They enable the investment managers to buy and sell securities.

Brokers are the registered members of the stock exchange.

They charge a commission for their services.

In some cases, provide investment managers with research reports.

Act as an important source of market information.

Registrar ortransferagents

Registrars, also known as the transfer agents, are responsible for the investor servicing

functions. This includes issuing and redeeming units, sending fact sheets and annual reports.

Some fund houses handle such functions in-house. Others outsource it to the Registrars;Karvy and CAMS are the more popular ones. It doesnt really matter which model your

mutual fund opt for, as long as it is prompt and efficient in servicing you. Most mutual funds,

in addition to registrars, also have investor service centers of their own in some cities.

Some of the investor related services are:-

Processing investor applications.

Recording details of the investors.


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Sending information to the investors.

Processing dividend payout.

Incorporating changes in the investor information.

Keeping investor information up to date.

3) HISTORYOFINDIANMUTUALFUNDSINDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit Trust of

India, at the initiative of the Government of India and Reserve Bank In early 1990s,

Government allowed only public sector banks and institutions to set up mutual funds. In the

year 1992, Securities and exchange Board of India (SEBI) Act was passed. SEBI formulatespolicies and regulates the mutual funds to protect the interest of the investors. SEBI notified

regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private

sector entities were allowed to enter the capital market. The history of mutual funds in India

can be broadly divided into four distinct phases: -

First Phase 1964-87 (Era of the UTI)

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set

up by the Reserve Bank of India and functioned under the Regulatory and administrative

control of the Reserve Bank of India. In 1978, UTI was de-linked from the RBI and theIndustrial Development Bank of India (IDBI) took over the regulatory and administrative

control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end

of 1988, UTI had Rs.6, 700 Crores of assets under management.

Second Phase 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector

banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of

India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987

followed by, Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov

89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its

mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end

of 1993, the mutual fund industry had assets under management of Rs.47, 004 Crores.

Third Phase 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual

fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the

year in which the first Mutual Fund Regulations came into being. The erstwhile Kothari

Pioneer was the first private sector mutual fund registered in July 1993.The 1993 SEBI


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(Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual

Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund)

Regulations 1996.

The number of mutual fund houses went on increasing, with many national & foreign

mutual funds setting up funds in India. As at the end of January 2003, there were 33 mutual

funds with total assets of Rs. 1, 21,805 Crores. The Unit Trust of India with Rs.44, 541

Crores of assets under management was way ahead of other mutual funds.

Fourth Phase since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was

bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust ofIndia with assets under management of Rs.29, 835 Crores as at the end of January 2003,

representing broadly, the assets of US 64 scheme, assured return and certain other schemes.

The Specified Undertaking of Unit Trust of India, functioning under an administrator and

under the rules framed by Government of India and does not come under the purview of the

Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is

registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation

of the erstwhile UTI which had in March 2000 more than Rs.76, 000 Crores of assets under

management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual

Fund Regulations, and with recent mergers taking place among different private sector funds,

the mutual fund industry has entered its current phase of consolidation and growth. As at the

end of September, 2004, there were 29 funds, which manage assets of Rs.153108 Crores

under 421 schemes.

4)GROWTH INASSETSUNDERMANAGEMENT

The Assets under Management of UTI was Rs. 67 billion by the end of 1987. Theperformance of mutual funds in India through figures is appreciable. The performance figures

have risen to three times higher till April 2004. It rose as high as Rs. 1,540 billion and as for

the last year they hold around 8 lakhs Crore of assets. The net asset value (NAV) of mutual

funds in India declined when stock prices started falling in the year 1992. One should notice,

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 scandal, the losses by disinvestments and of course the

lack of transparent rules in the whereabouts rocked confidence among the investors.


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Funds now have shifted their focus to the recession free sectors like

pharmaceuticals, FMCG and technology sector. Funds collection, which averaged at less than

Rs. 100billion p.a. over 5 year period spanning 1993-98 doubled to Rs210

billion in 1998-99. Total collection for the financial year ending March 2000 reached Rs.

450billion.

India had been at the first stage of a revolution that has already peaked in the U.S.

The figures indicate that in the 1st quarter of the year 1999-2000, mutual fund assets went up

by 115% whereas bank deposits rose by only 17%. The basic fact lies that banks cannot be

ignored and they will not close down completely. Their role as intermediaries cannot be

ignored.

The graph indicates the growth of assets over the years.

Note:While 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 theSpecified 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.

5)TYPESOF MUTUALFUNDS

Mutual fund schemes may be basically be classified on the basis of its structure and its

investment objective.

5.1) Structure:

Open-ended Funds:-


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securities in the proportion indicated in their offer documents. In a rising stock market, the

NAV of these schemes may not normally keep pace, or fall equally when the market falls.

These are ideal for investors looking for a combination of income and moderate growth.

Money Market Funds

The aim of money market funds is to provide easy liquidity, preservation of capital and

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

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

these schemes may fluctuate depending upon the interest rates prevailing in the market. These

are ideal for Corporate and individual investors as a means to park their surplus funds forshort periods.

5.3) OtherSchemes:

Tax Saving Schemes:-

These schemes offer tax rebates to the investors under specific provisions of the Indian

Income Tax laws as the Government offers tax incentives for investment in specified

avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes

are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides

opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual

Funds, provided the capital asset has been sold prior to April 1, 2000 and the amount is

invested before September 30, 2000.

5.4) SpecialSchemes:

Index Schemes:-

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

Sensex or the NSE 50.

Sectoral Schemes:-

Sectoral Funds are those, which invest exclusively in a specified industry or a group of

industries or various segments such as 'A' Group shares or initial public offerings.

6)BANKS V/SMUTUALFUNDS


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Mutual Funds are now also competing with commercial banks in the race for retail

investors savings and corporate float money. The coming few years will show that the

traditional saving avenues are losing out in the current scenario. Many investors are realizing

that investments in savings accounts are as good as locking up their deposits in a closet. The

fund mobilization trend by mutual funds indicates that money is going to mutual fund in a bigway. In India, mutual fund assets are not even 10 per cent of the bank deposits, but this trend

is beginning to change. This is forcing a large number of banks to adopt the concept of

narrow banking wherein the deposits are kept in Gilts and some other assets which improves

liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they will not

close down completely. Their role as intermediaries cannot be ignored. A comparison

between the both is made in the Table 1.1

CATEGORY BANKS MUTUALFUNDS

Returns Low High

Risk Low Moderate

Investment options Less More

Network High penetration Low but improving

Liquidity At a cost Better

Quality of assets Not transparent Transparent

Table 1.1

7)BENEFITSOFMUTUALFUNDINVESTMENT

1) ProfessionalManagement


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Mutual Funds provide the services of experienced and skilled professionals, backed by

a dedicated investment research team that analyses the performance and prospects of

companies and selects suitable investments to achieve the objectives of the scheme.

2) Diversification

Mutual Funds invest in a number of companies across a broad cross-section of

industries and sectors. This diversification reduces the risk because seldom do all stocks

decline at the same time and in the same proportion. You achieve this diversification through

a Mutual Fund with far less money than you can do on your own.

3) Return Potentialwithlowercosts

Over a medium to long-term, Mutual Funds have the potential to provide a higher

return as they invest in a diversified basket of selected securities.

4) Low Costs

Mutual Funds are a relatively less expensive way to invest compared to directly

investing in the capital markets because the benefits of scale in brokerage, custodial and other

fees translate into lower costs for investors.

5) Liquidity

In open-end schemes, the investor gets the money back promptly at net asset value

related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock

exchange at the prevailing market price or the investor can avail of the facility of direct

repurchase at NAV related prices by the Mutual Fund.

6) Affordability

Investors individually may lack sufficient funds to invest in high-grade stocks. A

mutual fund because of its large corpus allows even a small investor to take the benefit of its

investment strategy.

8)RISKSASSOCIATED WITH MUTUALFUNDS

The most important relationship to understand is the risk-return trade-off. Higher the

risk greater the returns/loss and lower the risk lesser the returns/loss. Hence its up to the

investor to decide how much risk they are willing to take. In order to do this they must first


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be aware of the different types of risks involved with their investment decision. Some of the

possible risks associated are outlined as follow

a) Marketrisk

Sometimes prices and yields of all securities rise and fall. Broad outside influences

affecting the market in general lead to this. This is true, may it be big corporations or

smaller mid-sized companies. This is known as Market Risk. A Systematic

Investment Plan (SIP) that works on the concept of Rupee Cost Averaging (RCA)

might help mitigate this risk.

b) Creditrisk

The debt servicing ability (may it be interest payments or repayment of principal) of a

company through its cash flows determines the Credit Risk faced by you. This credit risk is

measured by independent rating agencies like CRISIL who rate companies and their paper.

An AAA rating is considered the safest whereas a D rating is considered poor credit

quality. A well-diversified portfolio might help mitigate this risk.

c) Inflationrisk

Inflation is the loss of purchasing power over time. A lot of times people make

conservative investment decisions to protect their capital but end up with a sum of money

that can buy less than what the principal could at the time of the investment. This happens

when inflation grows faster than the return on your investment. A well-diversified portfolio

with some investment in equities might help mitigate this risk.

d) Interestraterisk

In a free market economy interest rates are difficult if not impossible to predict.

Changes in interest rates affect the prices of bonds as well as equities. If interest rates rise the

prices of bonds fall and vice versa. Equity might be negatively affected as well in a rising

interest rate environment. A well-diversified portfolio might help mitigate this risk.

e) Politicalrisk

Changes in government policy and political decision can change the investment

environment. They can create a favorable environment for investment or vice versa.

f) Liquidityrisk

Liquidity risk arises when it becomes difficult to sell the securities that one has

purchased. Liquidity Risk can be partly mitigated by diversification, staggering of maturities

as well as internal risk controls that lean towards purchase of liquid securities.


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Diversification, simply means, that you must spread your investment across different

securities (stocks, bonds, fixed deposits etc.) and different sectors (auto, textile, IT etc.). This

kind of a diversification may add to the stability of your returns.

9)VALUATION9.1 NetAsset Value (NAV)

The net asset value of the fund is the cumulative market value of the assets fund net of

its liabilities. In other words, if the fund is dissolved or liquidated by selling off all the assets

in the fund, this is the amount that the shareholders would collectively own. This gives rise to

the concept of net asset value per unit, which is the value represented by the ownership of one

unit in the fund. It is calculated simply by dividing the net asset value of the fund by the

number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring

the per unit. We also abide by the same convention.

9.2) Calculation ofNetAsset Value

The most important part of the calculation is the valuation of the assets owned by the

fund. Once it is calculated, the NAV is simply the net value of assets divided by the number

of the units outstanding. The detailed methodology for the calculation of the net asset value is

given below:

NAV = Market value of investments XXX

ADD:-

Current assets and other assets XXX

Accrued income XXX

XXX

XXX

LESS:-

Current liabilities and other liabilities XXX

Accrued expenses XXX

XXX

Net Assets Value XXXX

9.3) OtherImportantterms


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A. BETARATIO

A Beta ratio is the ratio of movement of securities variably with the market. A high

beta is good or bad depending on the state of the market. If the market sentiments are bullish,

i.e., the market is seeing a rise in general, then a high beta stock is better and if the market

sentiment is bearish then low beta is preferred.

B. R_SQUARED

Its a statistical measure that represents the rate of percentage of fund or

security movements that are explained by movements in a benchmark index. R-squared

values range from 0 to 100. An R-squared of 100 means that all movements of a security are

completely explained by movements in index

C. SHARP RATIO

High returns are generally associated with a high degree of volatility. The Sharpe ratio

represents this trade off between risk and returns. At the same time it also factors in the desire

to generate returns, which are higher than those from risk free returns.

D. EXPENSERATIO

The percentage of total fund assets that is used to cover expenses associated with the

operation of a mutual fund. This amount is taken out of the fund's assets and lowers the return

that fund holders achieve. These expenses include management fees and operating expenses

10) COMPETITIONINMUTUALFUNDSINDUSTRY

The most important trend in the mutual fund industry is the aggressive expansion of the

foreign owned mutual fund companies and the decline of the companies floated by

nationalized banks and smaller private sector players. Some schemes had offered guaranteed

returns and their parent organizations had to bail out these AMCs by paying large amounts of

money as the difference between the guaranteed and actual returns were huge. The service

levels were also very bad.

The experience of some of the AMCs floated by private sector Indian companies was

also very similar. They quickly realized that the AMC business is a business, which makes

money in a long term and requires deep-pocketed support in the intermediate years. Some

have sold out to foreign owned companies, some have merged with others and there is

general restructuring going on.

The foreign owned companies have deep pockets and have come in here with the

expectation of a long haul. They can be credited with introducing many new practices


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UnitTrust ofIndiaMutualFund

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 AssetManagement 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.

RelianceMutualFund

Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The

sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee 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 investors the opportunities to make investments in diversified

securities.

LICMutualFund

Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It

contributed Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was constituted as

a Trust in accordance with the provisions of the Indian Trust Act, 1882. The Company started

its business on 29th April 1994. The Trustees of LIC Mutual Fund have appointed Jeevan

Bima Sahayog Asset Management Company Ltd as the Investment Managers for LIC MutualFund

GIC MutualFund

GIC Mutual Fund, sponsored by General Insurance Corporation of India (GIC), a

Government of India undertaking and the four Public Sector General Insurance Companies,


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viz. National Insurance Co. Ltd (NIC), The New India Assurance Co. Ltd. (NIA), The

Oriental Insurance Co. Ltd (OIC) and United India Insurance Co. Ltd. (UII) and is constituted

as a Trust in accordance with the provisions of the Indian Trusts Act, 1882.

12)DATAANALYSIS

AND

INTERPRETATION


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1. Investmentinmutual funds

Interpretation: - The major part of the sample taken has invested in the Mutual

Funds. The demand for the mutual funds have increased in the past few years with many

Foreign players entering in the Indian market, Fidelity, Franklin Templeton, DSP Meryll

Lynch to name few. Still there are few who are not investing in MF.

2. Trading Preference oftheInvestors

63%

28%

9%

yes

no

earlier,nowstopped


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Interpretation: - The presence in the market is because of two reasons. Either the

investors prefer to speculate and benefit out of it or it is simply to have it as one more

investment avenue just like the fixed deposits, etc. Main purpose of investment in MF by

people was not to speculate. They considered it as a safer avenue for investment rather than

going to Share Market which is much risky as compared to MF. Few still prefer to speculate

and wait for NAVs to appreciate.

3. AverageInvestment Period ofInvestors

Interpretation: - The investment period is very important to increase the profits. The

timing must be right enough to benefit from fluctuations. The smart investor decides it in

Trading Preference

28%

56%

16%

Speculation

Investment

Both

Less Than3 months 3-9 Months 9 months -2 Year More Than2 Year

S1

23%

10%

42%

25%

0%

50%

Investment Period

Average Investment Period

Series1 23% 10% 42% 25%

Less Than 3-9 Months 9 months - More Than


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advance for how much time he would be keeping his money in the market and when he

should leave squaring-up. Many people consider the investment for 9 months 2 years as a

right option. Still some want to be invested for over 2 years. The least responded to the 3-9

months period.

4. RiskTaking

Interpretation: - The higher the Risk, the more the Profits. The people need to take

the risk to enjoy the benefits. Some investors were willing to take lower risk and this was the

reason they gave for investing in the MF. Most of the people would like moderate level of

risk in there investments.

5. Preferenceinmutual funds

Interpretation: - There are different types of mutual funds available in the market

according to the needs of the investors. There are Equity funds, SIP, Income Funds, Balanced

Funds, etc. The highest sought after fund is the Income fund which offers a regular income

through investments in the Govt. Bonds. It was also seen that Equity Fund which offers

higher returns gives high risk to the investments also and so is moderately invested in. Some

Preference in Mutual Funds

19%

18%

20%9%

15%

17%2%

Equity Balanced Income Money Market

ELSS SIP Others


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people would like to have Equity Linked Saving Schemes (ELSS). This provides some

exemption in the Tax also.

6. Types ofSchemes

Interpretation: - The schemes offered in the market are of two types, closed ended and

open ended. The more demand was for the Close ended funds with a locking period of around

2-3 years. The exit load refrain the person from quitting earlier.

7. Brandnameeffectiveness

yp S h

56%

44%

Closed Ended Funds Open Ended Funds


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Interpretation: - From the data collected it is clear that most of the people are notinfluenced by the company name while investing in a Fund

8. Influence

Interpretation: - From the data collected it is clear that most of people look at the

returns that the Mutual funds are providing .They look at the returns not the current NAV.

However there is some class of people who look at these parameters and their percentage is

23% and some consider both factors while investing in funds and their percentage is 21%.

0%

10%

20%

30%

40%

50%

60%

23%

56%

21%

0%

10%

20%

30%

40%

50%

60%

BY N V RE URN Both

23%

56%

21%


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9. ExperienceintheMarket

Interpretation: - The experience in the market was the factor which influenced the

investments. There are very few who have experience of less than a year. These are those

investors who entered into the market after noticing the rise in the market. The achievement

of 12,000 marks by SENSEX was motivational force in this. Major part was having vast

experience that is of more than 4 years. These are the ones who have been in the market and

saw it rising to conquer the 10.000 peak

13) FINDINGS & CONCLUSIONS

The study done was a tool to analyze the present setup and to know the investors

perception regarding investment in Mutual Funds. The study proved fruitful and many facts

came to the light. The following were the findings of the study: -

Experience

26%

21%

53%

Less T Year

1-4Years

M re T an4

Years


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y Amongst the survey, most of the people who were not investing held their ignorance

responsible for that. They lacked knowledge about these schemes of the mutual

funds. Among others, a no. investors are not willing to take much riskmost of them

opted for diversification, followed by reduction in risk, which helps in achieving

long term goals and helps in achieving long term goals respectively

y People with less experience were inclined towards investment in the Mutual Funds. It

attracted as a safer avenue as compared to share market. Young agers were diverted

towards direct share trading.

y The industry is made up by mostly joint ventures between the various funds houses

discussed as above, except for SBI Mutual Fund. Rest of them has multiple sponsors

& trusts.

y Mutual Funds are more of an investment option than the speculative avenue. People

tend to gain through long investments rather than through short term. The most

alluring feature of MFs were, most of them opted for diversification, followed by

reduction in risk, helps in achieving long term goals and helps in achieving long term

goals respectively i.e. the Income funds, equity and ELSS are among the few top

funds as they suited the above necessities.

y At the survey conducted upon a no. of people, some were already mutual fund

investors or were interested to invest in future and a few remaining are not interested

in it. So, that shows a good market area for the mutual funds & proper eagerness ofpeople is present in here to use there savings.

Most of the people were from GOLAGHAT town itself. Most look at the returns that

are being given by a Fund. 60% are in this favour and only 23% people are there who

consider current NAV of the fund before investing into a Mutual Fund 17% were such that

choose to move along with the crowd. Experience was the main factor that made them invest

in the mutual funds.

14) Recommendations


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What I recommend firstly there should be

[1] Creating an enquiry office for investors of the Fund Market: - This will be a new

step towards a good trust builder of market widening in the area. After seeing such a boost

in the share market, not only our Adult generation but also the young generation is also so

much excited to enter the share market. Now the actual problem starts as they dont having

enough knowledge & lacking of experience about the market trends just rush and lose their

money as happened in my case & later they blames the company about the loss. Before this

could happen, proper guidance giving office should be there.

(1) Targeting the perfect crowd for investments: - Mutual funds offer a lot of benefit

which no other single option could offer. But most of the people are not even aware of what

actually a mutual fund is? They only see it as just another investment option. So the advisors

should try to change their mindsets. The advisors should target for more and more young

investors. Young investors as well as persons at the height of their career would like to go for

advisors due to lack of expertise and time.

[2] Provision forClass Room training for the new investors: - So, to make them

adequate knowledgeable in the field of investments, local stock brokers, colleges & other

Non Governmental Organisations should take initiative and hold seminars for the general

public and support them to enter slowly but surely the market.

[3] Luring the investors by showing him the benefits : -The advisors may try to

highlight some of the value added benefits of MFs such as tax benefit, rupee cost averaging,

and systematic transfer plan, rebalancing etc. these benefits are not offered by other options

singlehandedly. So these are enough to drive the investors towards mutual funds. Investors

could also try to increase the spectrum of services offered.

(4) Reduction in fees structure of the investors: - Now the most important reason for

not availing the services of advisors was spotted was being expensive. The advisors should

try to charge a nominal fee at the beginning. But if not possible then they could go for


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offering more services and benefits at the existing rate. They should also maintain their

decency and follow the code of ethics so that the investors could trust upon them. Thus the

advisors should try to attract more and more persons and turn them into investors and finally

their clients.

Note:

The recommendations which I have listed here above are strictly based on the

knowledge of the securities market that I have acquired during preparation of this project. All

the recommendations are for the improvement of general investors knowledge base and for

the mutual funds industry in relation to Golaghat.

The recommendations are purely based on the interviews made & questionnaires

developed by me.

15) LIMITATIONS


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There were certain limitations faced during the study.

Some people were not willing to disclose the investment profile

The biasness was being taken care of.

The total no. of people investing overall is very small as compared to those who

dont.

The area of sample was decided after taking into consideration the major factors like

-

o Availability of investors.

o Approachability.

o Time available with investor for interaction, etc.

16) ANNEXURE 1


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QUESTIONNAIRE

Name: ..... Occupation:

Investment Presently Held:

Please list the value of the assets in your total investments portfolio :( in Rs.)

Stocks: ______ Mutual Funds: _______

Options: ______ Govt. Securities: _______

Bank Deposits: _______

(1) Overthenext 3-5years,do youexpectyourannualincometo change?

Increase Decrease Remain the same.

(2) Do youinvestinMutualFunds?

Yes No Earlier, now Stooped

(3) WhatisyourExperienceinthemarket?

Less than a year 1-4 years More than 4 years

(4) WhatisyourTrading Preference?

Speculation Investment Both

(5) WhatisyourAverageinvestment period?

Less than 3 months. 3 to 9 months.


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9 months to 2 year. More than 2 year.

(6) How muchRiskareyou willingto take?

High Low Moderate

(7) Whatisyour preferenceinMutualFunds?

A. Equity. B. Income

C. Money Market Funds D. ELSS

E. Balanced Funds F. SIP

G. Others

(8) Whichtype of Mutual fundsschemedo you prefer?

Open Ended Schemes Closed Ended Schemes

(9) Do yougetinfluencedbythename ofCompany promotingMutualFunds?

No Yes

3

(10) Do youget influencedbythereturnsgivenbya fund orbythecurrentNAV ofa

fund?

ByNAV ByReturns Both

(11) Anysuggestions:

.........

..........

17)BIBLIOGRAPHY


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Sitesvisited

1. www.mutualfundsindia.com2. www.indiainfoline.com3. www.amfiindia.com4. www.sebi.gov.in5. www.bseindia.com6. www.theeconomictimes.com7. www.investopedia.com8. www.moneycontrol.com

Books & JournalsReferred

a) Money Outlooks Guide to Mutual Fundsb) The Economic Timesc) Business Standardd)ASSOCIATIONOF MUTUAL FUNDS IN INDIA (AMFI) Workbook, Third Edition.

5. Project Final

Documents

Transcript of 5. Project Final