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Title of the study

A study on the factors influencing the Mutual fund Investors

EXECUTIVE SUMMARY

The Mutual Fund Industry has come a long way since the days of the UTI. The

numbers of mutual funds has also increased over the years. Mutual funds are seen

as an avenue for the retail investors to enter the stock market and bonds. They

provide the professional competence to the retail investor. In India the retail

investor is increasingly seeing mutual fund as an alternative investment avenue to

the low-yielding bank deposits

This survey was conducted to know the retail investors PREFERENCEs about

mutual funds. Its objective was to measure the investors sensitivity to mange the

portfolio to achieve objectives like:

Tax incentives.

Capital gain.

Time horizon of investment.

Risk and return expectations.

The sample size was 150, and the total samples were divided between two

segments of current and potential mutual fund investors. The sampling for the

study was a convenient sampling. Survey came out with some interesting findings

that show that some investors were willing to take the risk whereas others had the

idea of diversifying their investment portfolio. The groups having different levels

of education had different PREFERENCE about investment. The level of

education had a direct bearing on the investment patterns. The higher the

education, the higher was the level of understanding of investment complexities.

As such a large number of graduates were found to have invested in mutual fund.


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as the financial and awareness of mutual funds increases But surely there are signs

that the investors inclination towards mutual funds is increasing and market

strengthens, this investment instrument will become popular.

INTRODUCTION

The entry of private players with their foreign partners into the mutual fund

business has revolutionized the industry. They brought professional competence

and their aggressive marketing has made mutual funds an important part of any

individual portfolios in India. As of the recent findings there are about 1457

schemes offered 31 mutual funds.

The good performance of the economy and the stock markets in last couple of

years contributed to the growth of the mutual funds. Low interest rates on bank

deposits and tax concessions on some of the schemes also contributed to the

growth.

But the penetration of the mutual funds in the retail investor segment is still low

compared to the developed world. In India, the size of the industry is just 6% of the

GDP, while it is 70% in the US. World over it is around 37%. The contribution

from the retail investors to the funds is very low compared to institutions and high

net worth individuals. For the growth of industry, active participation of the retail

investors is necessary.


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1.1 INDUSTRY PROFILE

The Indian mutual fund industry began with the formation of the Unit Trust of

India (UTI) in 1964 by the government. UTI was formed as a non-profit

organization governed under a special legislation, the Unit Trust of India Act,

1963. It had a monopoly up to 1987 and during this period, UTI launched a series

of equity and debt schemes and established itself as a household name with assets

under management of Rs. 4563 crore and unit holder accounts of slightly under 3

million by mid 1987. UTIs growth continued up to 1996 when the strong entry of

the private sectors players saw its share of market reducing sharply although UTI

continues to be a dominant force in the Indian financial services industry with

assets of over Rs. 67,000 crore as of December 31st, 1999.

In 1987, the industry saw the entry of public sector mutual funds, i.e. funds

promoted by public sector banks and financial institutions, such as SBI, Canara

bank, LIC and IDBI. Predictably they were given the brand of their promoters such

as SBI mutual funds, Canara bank mutual funds, LIC mutual funds, IDBI mutual

fund. Other public sector mutual funds also entered the market but UTI continued

to remain the dominant player with a share of 84% in 1991-92.


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In 1993, private and foreign fund houses were allowed to operate in India. Today,

about 36 funds houses-private, state and foreign owned-operate in the country, but

the Indian mutual fund industrys pace of growth can hardly be described as

frenetic.

On June 30, 2003 in Indian mutual funds commanded assets of Rs. 1,04,762 crore,

8% of the retail deposits of schedule commercial banks.

The industry has over 550 schemes in equity, debt, gilt and balanced funds, offered

by 36 fund houses. They include prudential ICICI, HDFC, Franklin Templeton,

Birla Sun life mutual funds, Sundaram mutual funds, etc.

Prudential ICICI is the largest operating private sector in the mutual fund industry

followed by HDFC mutual fund after it took over Zurich India mutual funds.

The share of private players in the mutual fund industry has gone up steadily.

Prudential ICICI is posed to overtake UTI asset management in terms of assets

under management (AUM). Prudential ICICI has assets of Rs. 12,637 crore as

against UTI, AMCs Rs. 16,015 crore at the end of June, 2003. Other private funds

are also catching up with ICICI mutual fund and Franklin Templeton at Rs. 11,961

and Rs. 11,152 crore respectively.


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1 .2 ICICI COMPANY PROFILE

ICICI BANK

ICICI Bank is Indias second largest bank with total assets about a trillion

and a network of about 540 branches and offices and over 1600 ATMs.

ICICI Bank offers a wide range of banking products and financial services

to corporate and retail customers through a variety of delivery channels and

through its specialized subsidiaries and affiliates in the areas of investment

banking, life and non life insurance, venture capital, asset management and

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

stock exchanges at Chennai, Delhi, Kolkata and Vadodara, the Stock

Exchange, Mumbai and the National Stock Exchange of India Limited and

its American Depository Receipts (ADRs) are listed on the New York Stock

Exchange (NYSE).

ICICI Bank was originally promoted in 1994 by ICICI Ltd., an Indian

financial institution, and was it wholly owned subsidiary. ICICIs


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shareholding in ICICI bank was reduced to 46% through a public offering of

shares in India in fiscal 1998, an equity offering in the form of ADRs listed

in NYSE in fiscal 200, ICICI Banks acquisition of Bank of Madura Limited

in all stock amalgamation in fiscal 2001, and secondary market sales by

ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was

formed in 1955 at the initiative of the World Bank, the Govt. of India and

representatives of the Indian industry. The principal objective was to create

a developmental financial institution for providing medium term and long

term project financing to Indian businesses. In the 1990s ICICI transformed

its business from

developmental financial institution offering only project finance to a

diversified financial services group offering a wide variety of products and

services, both directly and through a number of subsidiaries and affiliates

like ICICI Bank. In 1999 ICICI became the first Indian company and the

first bank or financial institution from non Japan Asia to be listed on the

NYSE.

After consideration of various aspects corporate structuring themselves in

the context of the emerging competitive scenario in the Indian banking

industry, and the move towards universal banking, the managements of

ICICI and ICICI Bank formed a view that the merger of the ICICI with

optimal legal structure for the ICICI groups universal banking strategy. The

merger would enhance value for ICICI shareholders through the merged

entitys access to low cost deposits, greater opportunities for earning fee-

based income and the ability to participate in the payments system and

provide transaction banking services. The merger would enhance value for


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ICICI Bank shareholders through a large capital base and scale of

operations, seamless access to ICICIs strong corporate relationships built

up over a five decades, entry into new business segments, higher market

share in various business segments, particularly fee based services and

access to the vast talent pool of ICICI and its subsidiaries. In October 2001,

the Boards of Directors of ICICI and ICICI Bank approved the merger of

ICICI and two if its wholly owned retail finance subsidiaries, ICICI

Personal Financial Services Limited and ICICI Capital Services Limited,

with ICICI Bank. The merger was approved by shareholders of ICICI and

ICICI Bank in January 2002, by the High Court of Gujarat at Ahmedabad in

March 2002 and by the High Court of Judicature at Bombay and the Reserve

Bank of India in April 2002, consequent to the merger, the ICICI Groups

financing and banking operations, both wholesale and retail have been

integrated in a single entity.

ICICI Bank pioneered internet banking in India and today has over one

million of its retail customers on the net. ICICI Bank has been following a

multi channel multi product retail strategy. It functions as a universal bank,

through itself and its associate companies in the areas of corporate finance,

commercial banking, personal banking, investment banking, asset

management, investor services, broking and insurance.

ICICI Bank is the only Indian financial services company to be rated above

the sovereign rating by Moodys reflecting the underlying positive

sentiment about the Banks fundamentals in the international community. It

is also the first Indian company and the second bank from Asia to list on the

New York Stock Exchange. It instituted global benchmarks in India through


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its US GAAP audit processes, SEC companies practice and corporate

governance practices.

ICICI Bank (NYSE:IBN) is the largest private sector bank in the country,

providing a broad spectrum of financial services to individuals and

companies. ICICI Bank today services a growing customer base of more

than 5 million customer accounts and 5 million bondholders accounts

through a multi-channel access network.

Except for the historical information contained herein, statements in this

release, which contain words or phrases such as will, would etc. and

similar expressions or variations of such expression may constitute forward

looking statements. These forward looking statements involve a number of

risks, uncertainties and other factors that could cause actual results to differ

materially from those suggested by the forward looking statements

These risks and uncertainties are not limited to our ability to obtain

statutory and regulatory approvals and to successfully implement our

strategy, future levels of non performing loans, our growth and expansion in

business, the adequacy of our allowance for credit losses, technological

implementation and changes, the actual growth in demand for banking

products and services, investment income, cash flow projections, our

exposure to market risks as well as other risks detailed in the reports filed

by us with the United States Securities and Exchange Commission.

ICICI Bank undertakes no obligation to update forward looking statements

to reflect events or circumstances after the date thereof.


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ICICI Bank is looking for improvements marketing efforts and has invested

on the customer relationships and increase the value of each customer

through cross-selling. The new system may ultimately help the bank to

significantly increase fee-based income growth.

ICICI BANK OVERVIEW

y Setup by the erstwhile ICICI Limited and SCICI Limited in the year

1994.y Largest private sector bank in India in terms of assets.

y Second Indian company to get listed on NYSE (the erstwhile ICICI

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

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

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

y Foreign holding : 63%.

y 3/5 foreign stake denotes highly competitive management and robust

growth.

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

additional safety cushion.


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1.3 PRODUCT PROFILE

1. Franklin Templeton Investments

Franklin Templeton Investments is one of the largest financial services groups in

the world based at San Mateo, California USA. The group has US$ 347.4 billion in

assets under management globally (as of July 31, 2004) in mutual funds and other

investment vehicles for individuals, institutions, pension plans, trusts, partnerships

and other clients. Franklin Templeton offers over 240 investment products,

available under the Franklin, Templeton and Mutual series brand names, serviced

and supported by 6,400 employees in more than 28 countries. With over 50 years


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of experience in international investment management and offices in over 28

countries it services more than 10 million unit holders. Franklin Templeton has

achieved the Dalbar Service Award in the US six times in the past ten years for

superior customer service and back office support.

Franklin Templeton in India:

As part of Franklin Templetons thrust in expanding business in key international

markets, Franklin Templeton has set up offices in 33 locations nationwide and

manages Rs. 17698.78 crores in assets and an investor base of 9 lacks as of July

30, 2004.

2. Prudential ICICI Asset Management Company

Prudential ICICI Asset Management Company, (55%:45%) a joint venture

between Prudential Plc, UKs leading insurance company and ICICI Bank Ltd,

Indias premier financial institution.

The joint venture was formed with the key objective of providing the Indian

investor mutual fund products to suit a variety of investment needs. The AMC has

already launched a range of products to suit different risk and maturity profiles.

Prudential ICICI Asset Management Company Limited has a net worth of about

Rs. 69.89 crore as of March 31, 2002. Both Prudential and ICICI Bank Limited

have a strategic long term commitment to the rapidly expanding financial services

sector in India. Assets under Management as on July 31, 2004 are Rs. 15,945.29

crore with Number of Funds Managed being 217.


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3. Tata Asset Management Limited

Tata Asset Management Limited, one of Indias fastest growing fund management

companies worth more than 5,500 crores (as on July 30, 2004) of assets, from

about 0.3 million investors, under management.

A Proud Pedigree: Tata Asset Management Limited is part of the Tata group one

of Indias largest and most respected industrial groups. The Tata group is one of

Indias best known conglomerates in the private sector with a turnover of around

US$ 11.2 billion (equivalent to 2.4% of Indias GDP). Long known for its

adherence to business ethics, it is Indias most respected private group. With

210,433 employees across 93 companies, it is also Indias largest employer in

private sector.

The group has always believed in returning wealth to the society to which it serves.

Thus, nearly two-thirds of the equity of Tata Sons, the Groups promoter company,

is held by philanthropic trust which have created a host of national institutions in

natural sciences, medical care, energy and arts, and which gives substantial grants

and endowments to deserving individuals and institutions in the areas of education,

healthcare and social upliftment.

By combining ethical values with business acumen, globalization with national

interests and core businesses with emerging ones, the Tata Group aims to be the

largest and most global brand from India.

4. UTI Mutual Fund


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UTI Mutual Fund has come into existence with effect from 1st

February 2003. UTI

Asset Management Company presently manages 42 NAV based domestic SEBI

complaint schemes and 4 off shores fund having a corpus Rs. 15,243 crore from

about 10 million investor accounts.

UTI Mutual Fund has a track record of managing a variety of schemes catering to

the needs of every class of citizenry over a period of 39 years. It has a national

wide network consisting of 54 branch offices, 3 UTI Financial Centers (UFCs) and

representative offices in Dubai and London. With a view to reach the investors at

district level, 18 satellite offices have also been opened in select towns and

districts. It has 2400 committed employees and over 10,000 active agents and 266

chief representatives to sell and service its schemes.

It has reset transparency standards for the mutual fund industry. All the branches,

UFCs and registrar offices are connected on a robust IT network to ensure cost-

effective quick and efficient service. All has evolved UTI Mutual Fund to position

as a dynamic, responsive, restructured, efficient, and transparent and SEBI

compliant entity.

5. Birla Sun Life Financial Services

Birla Sun Life Financial Services offers a range of financial services for Resident

Indians and Non Resident Indians. Brought together by two large, powerful

business houses, the Aditya Birla Group and Sun Life Financial, it is their aim to

offer diverse and top quality financial services to customers. The Mutual Fund and

Insurance Companies provide wealth management and protection products to

customers while the Distribution


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and Securities companies provide brokerage and trading services for investment in

equities, debt securities, fixed deposits etc.

Birla Sun Life Financial Service follows a conservative long term approach to

investment, which is based on identifying companies that have good credit-

worthiness and are fundamentally strong. It places a lot of emphasis on quality of

management and risk control. This is done through extensive analysis that

influences factory visits and field research. It has one of the largest team of

research analysts in the industry. The company is one of Indias leading private

mutual funds with a large customer base. It has been recognized nationally with

coveted awards.

6. HDFC Mutual Fund

Sponsors of HDFC Mutual Fund are HDFC and Standard Life Assurance

Company.

HDFC was incorporated in 1977 as the first specialized housing finance institution

in India. HDFC provides financial assistance to individuals, corporate and

developers for the purchase or construction of residential housing. It also provides

property related services (e.g. property identification, sales services and valuation)

training and consultancy. Of these activities. Housing finance remains the

dominate activity. HDFC currently has a client base of over

5, 00,000 borrowers, 13,00,000 depositors, 1,00,000 shareholders and 52,000

deposit agents. HDFC raises funds from international agencies such as the World

Bank, IFC (Washington),USAID, CDC, ADB, AND KIW, domestic term loans

from banks and insurance companies, bonds and deposits. HDFC has received the


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highest rating for its bonds and deposits program for the eighth year in succession.

HDFC Standard Life Insurance Company Limited, promoted by HDFC was the

first life insurance company in the private sector to be granted a Certificate of

Registration (on October 23, 2000) by the insurance Regulatory and Development

Authority to transact life insurance businesses in India.

The Standard Life Assurance Company was established in 1825 and has

considerable experience in global financial markets. In 1998, Standard Life

Investments Limited became the dedicated investment management company of

Standard Life Group and is owned 100% by The Standard Life Assurance

Company. With global assets under management of approximately US$126 billion

as at May 15, 2003, Standard Life Investments Limited is one of the worlds major

investment companies and is responsible for investing money on behalf of five

million retail and institutional clients worldwide. With its headquarters in

Edinburgh, Standard Life Investments Limited has an extensive and developing

global presence with operations in he United Kingdom, Ireland, Canada, USA and

Hong Kong. In order to meet the different needs and risk profiles of its clients,

Standard Life Investments Limited manages a diverse portfolio covering all of the

major markets world-wide, which includes a range a of private and public equities,

government and company bonds, property investments and various derivative

instruments. The companys current holding in UK equities account for

approximately

2% of the market capitalization of the London Stock Exchange. The Standard

Life Assurance Company was therefore keen to re-enter the Indian market and in

1995, signed an agreement with HDFC to launch an insurance joint venture.


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HDFC and Standard Life Investment Limited are neither responsible nor liable for

any loss resulting from the operation of the Scheme(s) beyond their contribution of

an amount of Rs. 1 lakh each made by them towards the corpus of the Mutual

Fund.

7. Reliance Capital Asset Management LTD.

(RCAM) a company registered under the Companies Act, 1956 was appointed to

act as the investment manager of Reliance Capital Mutual Fund, it is a wholly

owned subsidiary of Reliance Capital Ltd.

The net worth of the asset Management Company as on March 31, 2004 is Rs.

16.84 crores. The Mutual Fund has launched eleven Schemes till date, namely:

Reliance Vision Fund (September 1995) Reliance Growth Fund (September 1995)

Reliance Income Fund (December 1997), Reliance Liquid Fund (march 1998) and

Reliance Medium Term Fund (August 2000), Reliance Short Term Fund

(December 2002), Reliance Gilt Securities Fund (july 2003)., Reliance monthly

income plan (December 2003) reliance diversified power sector fund (March 2004)

and Reliance paharma fund (April 2004).

Reliance Capital Asset Management Ltd, Has been registered as a portfolio

manager dated July, 25 2000 and as foreign i9nstititioal investor effe3cive 1st

august 2003. RCAM has not commenced these activates. However, as and when

the same are undertaken, it will ensure that the key personnel of the AMC, the

systems, back office, bank and securities accounts are segregated activity wise and

there exits systems to prohibit access to inside information of various activities.

As per SEBI Regulations, it will further ensure that AMC meets the capital

adequacy requirements, if any separately for each such activity and obtain separate

approval. If necessary under the relevant regulations.


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1.4 OPERATIONAL DEFINITION OF CONCEPTS

INTRODUCTION

A mutual fund is a pool of money, collected from the investors, and is

invested according to certain investment objectives. A mutual fund is created when

investors put their money together. it is therefore a pool of the investors funds.

The most important characteristic of a mutual fund is that the contributors and the

beneficiaries of the fund are the same class of people, namely investors. The term

mutual fund means that 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 is the mutual funds. A mutual funds business is to invest the funds thus

collected, according to the wishes of the investors who created the pool.

Mutual funds: Concepts and Structure

A mutual fund represents a collective investment vehicle. When you participate in

a scheme of a mutual fund, you become a part owner of the investments held by

that fund under that scheme to the extent of your unit holding in that fund.


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The pool of money collected from the individual investors by the mutual fund unit

is invested in financial assets such as shares, government securities, debentures and

money market instruments like commercial papers certificate of deposits and

treasury bills.

From these assets the mutual fund unit receives dividends, if it is a share or an

interest if it is a debenture or government securities. Therefore it receives either

dividends or interest and the same interest or the same interest or dividends are

given to the individual investors by the mutual fund unit. Therefore it is known as

a collective investment vehicle.

some key features of mutual fund are as follows,

Reduce your risks

Mutual funds allow you to broaden your portfolio while at the same time helping

you reduce your overall investment risk by diversification of investment.

Maximize your opportunities

The fund managers who take care of your mutual fund have access to

information and statistics from leading economists and analysts around the

world. Because of this, they are in a better position than individual investors to

identify opportunities for your investments to flourish.

Liquidity: Quick access to your money


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With mutual funds its not only possible but easy to have access to your money at

short notice. Why? Because mutual funds can be bought and sold on any dealing

day (this normally means weekdays).

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.

Low cost

Mutual funds are relatively less expensive way to invest compared to directly

investing in the capital markets because the benefits of scale in brokerage,

custodial and other fees translate into lower costs for investors. A large number of

investors normally participate in a single mutual fund, and operating costs and

commissions are spread among the whole group into different funds.

Transparency


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The investor gets regular information on the value of his investment in addition to

disclosure on the specific investments made by the fund, the proportion invested in

each class of assets and the fund managers investment strategy and outlook.

Regulated for investor protection

All mutual funds in India are registered with the regulator of the Indian securities

industry- the Securities and Exchange Board of India (SEBI). The funds function

within the framework regulations designed by SEBI and these regulations are

intended to protect the interests of investors. The operations of the mutual funds

are also regularly monitored by SEBI.

Do investors have to make a lump sum investment?

You dont need to make a large lump sum investment. Mutual fund companies

also offer a Varity of monthly investment plan where no initial lump sum is

required.


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STRUCTURE OF A MUTUAL FUND

A typical mutual fund in India has the following constituents

FUND sponsors:

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

corporate, establishers a mutual fund. The sponsor of the fund is similar to the

promoter of the company. In accordance with SEBI regulations, the sponsor forms

a trust and appoints a board of trustees, and also generally appoints an AMC as

fund manager. In addition, the sponsor also appoints the custodian to hold the

funds assets. The sponsor must contribute at least 40% of the net worth of the

AMC and possess a sound financial track record over 5 years prior to registration.

Mutual fund:

A mutual fund in India is constituted in the form of a trust under the Indian trusts

act of 1882. The fund invites investors to contribute their money in the common

pool, by subscribing to units issued by various schemes established by the trust.

The assets of the trust are held by the trustee of the benefits of unit holders, who

are the beneficiaries of the trusts. Under the Indian trust act, the trust of the fund

has no independent legal capacity; it is the trustee(s) who have the legal capacity.

Trustees:


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The mutual fund or the trust can either be managed by the board of trustees. Which

is a body of individuals, or by a trust company, which is a corporate body? The

board of trustees manages most of the funds in India. The trustee being the

primary guardians of the unit holders funds and assets, a trustee has to be a person

of high repute and integrity. The trustees, however, do not directly manage the

portfolio of securities. The portfolio is managed by the AMC as per the defined

objectives, in accordance with trust deed and SEBI (mutual fund) regulations.

Assets Management Company:

The AMC, which is appointed by the sponsor or the trustees and approved by

SEBI,act like the investment manager of the trust. The AMC functions under the

supervision of its own board of directors, and also under the direction of the

trustees and the SEBI. AMC, in the name of the trust, floats and manages the

different investment schemes as per the SEBI regulations and as per the

investment management agreement signed with the trustees.

Apart from these, the mutual fund has some other fund constituents, such as

custodians and depositories, banks, transfer agents and distributors. The custodian

is appointed for a safe keeping of securities and

participating in the clearing system through approved depository. The bankers

handle the financial dealing of fund. AMCs appoint distributors or brokers who

sell units on behalf of the fund, and also serve as investment advisors. Besides

broker, independent individuals are also appointed as agents for the purpose of


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selling fund schemes to investors. The regulations arms length relationship

between the fund sponsors, trustees, custodians and AMC.

CLASSIFICATION OF MUTUAL FUND

TYPES OF MUTUAL FUND SCHEMES:

Open ended versus close ended schemes:

A mutual fund scheme may be a close ended scheme or an open ended scheme.

The key differences between the close end and the open end scheme are as follows:

The subscription to close end scheme is kept open only for a limited period

(usually one month to three months), whereas an open end scheme accepts funds

from investors by offering its units or shares on a continuing basis.

A close end scheme does not allow investors to withdraw funds as and when they

like, where as an open end scheme permits investors to withdraw funds on

continuing basis under a re purchase arrangement.

A close end scheme has a fixed maturity period (usually five to fifteen years)

whereas an open end scheme has no maturity period.

The close end schemes are listed on the secondary market, whereas the open end

schemes are ordinarily not listed.


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There are different types of mutual fund schemes:

y Equity funds

y Debt fund/ income funds

y Balanced funds

y Monthly income plants

y Sectoral funds

y Money market schemes

y Index funds

Equity funds:

Equity funds, as the name suggests have an investment portfolio which is weighed

in favor of equity. The equity holding may even be 100%. Equity securities

represent ownership capital. There exits no certainness with regards to the returns

resulting thereof, both in terms of dividends and capital gains. Hence equity

instruments by nature are volatile and prone to price fluctuations on a daily basis


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due to both macro and micro factors. Trading volumes, settlements periods and

transfer procedures may restrict the liquidity of these investments.

Equity fund is also known as growth fund. The aim of equity fund is to provide

capital appreciation over the medium to long term. Such funds have comparatively

high risks. These schemes provide different options to the investors like dividend

option, capital appreciation etc and the investors may choose an option depending

on their preferences. Growth schemes are good for the investors having a long

term outlook seeking appreciation over a period of time.

The equity funds may be of two types:

Aggressive and

Conservative

Aggressive is that type of equity fund in which you have a higher risk involved.

These can be the shares of the companies who are not the blue chip companies

(generally mid cap companies) and their returns are also very high. These are the

shares of the companies that are not listed in the top form. They offer very high

returns subject to accompanying high risk exposure.

Conservative equity funds, on the other hand are those equity funds in which you

can expect reasonable rate of returns subject to a very moderate amount of risk.

The companies which belong to these are the blue chip companies. These are less

volatile when compared to the aggressive type of equity fund.

2. Debt fund:


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Debt funds are those funds in which there is 100% debt and no equity involved.

This is also called as income funds. These funds provide regular income to the

investors. Such schemes generally invest in fixed income securities such as bonds,

corporate debentures, government securities and money market instruments. Such

funds are less risky compared to equity schemes. These funds are not affected

because of fluctuations in equity markets. However, opportunities of capital

appreciation are also limited in such funds. The net asset values of such funds are

affected because of change in the interest rates in the country. If the interest rates

fall. The NAVs of such funds are likely to increase in the short run and vice versa.

Hence although the risk is les when compared to equity funds, the values of these

funds are influenced by interest rate risk.

The debt funds can also be differentiated as aggressive and conservative debt

funds. This differentiation is on the basis of the grading of the securities that the

fund holds. For e.g. aggressive funds invest in debt securities of low rated

companies or institutions like local authorities. Since the risk associated with these

debt instruments is higher than those of central government and AAA rated

companies, the return is also higher in the form of higher coupon rates.

Balanced fund:

Balanced fund are those funds in which you have the mixture of both equity and

debt. A balanced scheme, as the name suggests, invests its corpus across two

broad asset classes, viz. equity and debt in a more or less balanced manner. A

commonly followed allocation is as follows:


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Allocation of percentage (%) of corpus

Maximum Minimum

Equity 60% 40%

Debt 60% 40%

The objective of the balanced scheme is to combine growth and stability. These

funds are also affected because of fluctuations in the share prices in the stockmarkets. However NAVs of such funds are likely to be less volatile compared to

pure equity funds. These balanced funds also have both aggressive and

conservative funds.

Monthly income plans:

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

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

through a portfolio of predominantly high quality fixed income securities with a

maximum exposure of 20% to equities and the rest to the debt. Hence it involves

the total debt-equity allocation mix of 20-80.

In the case of monthly income plans, the fund manager strives to earn regular

income with no assured returns in the fixed income market by actively managing


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the funds portfolio on interest rate movements and credit risks, while seeking to

enhance the returns with a marginal equity allocation

.

Sectoral funds:

A sectoral fund invests its corpus in the equity stocks of a given sector such as

pharmaceuticals, information technology, telecommunication, and so on. Sectoral

schemes appeal to investors interested in taking a bet on those sectors.

Let us take for example an IT Sector fund. In this fund, the entire corpus would be

invested only in securities issued by IT companies. The portfolio theoretically

includes both debt and equity. However in practice it is usually restricted to equity

investments only. The nature of companies are both top end market leaders and

mid cap, growing companies.

Money market schemes:

Debt instruments which have a maturity of less than one year at the time of issue

are called money market instruments. These instruments are highly liquid and

have negligible risk. The major money market instruments are treasury bills,

certificate of deposit, commercial papers and repots.

These funds are also known as liquid funds. These funds are also income funds

and their aim is to provide easy liquidity, preservation of capital and moderate

income. The investment objective of this scheme is to provide investors with high

safety, a high degree of liquidity and current income through investment in high

quality money market instruments.


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These funds are appropriate for corporate and individual investors as a means to

park their surplus funds for short periods. Money market instruments have

negligible interest risk exposure as well as credit risk exposure. The principal

value of unit in a liquid scheme remains stable thought the periodic income may

vary depending on the conditions in the money market.

Liquid funds = money market fund + short term deposits with banks. The rationale

behind mutual funds investing in short term deposits with banks is that they are

usually able to obtain a higher interest rate due to

their huge investment size and also because they are better equipped to assess the

risk associated with the bank. The latter is especially relevant in the case of private

sector banks.

Index funds:

An index scheme is and equity scheme that invests its corpus in a basket of equity

stocks that comprise a given stock market index such as S & P CNX Nifty index,

with each stock being assigned a weightage equal to what is has in the index. Thus

and index fund appreciates or depreciates (subject to tracking error) the same way

as the index. The principal objective of an index scheme is to give a return in line

with the index movement.

The investment objective of the index fund aims to provide returns that, before

expenses, closely correspond to the total return of common stocks as represented


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by the S&P CNX Nifty index under the Nifty plans and the BSE Sensex under

the BSE Sensex plans.

In this type of mutual fund the fund manager follows a passive style of equity

investing. The portfolio of the fund is dependent upon the composition of the stock

market index which it follows. Any changes in the index (additions or deletions of

companies change in weightage) are reflected in the portfolio. This is because

index funds replicate the portfolio of a particular index such as the BSE. Sensitive

index, S&P NSE 50 index (nifty), etc. these schemes invest in the securities in the

same weightage comprising of and index. NAVs of such schemes would rise or

fall in accordance with the rise or fall in the index, though not exactly by the same

percentage due to some factors known as tracking error in technical terms.

Necessary disclosures in this regard are made in the offer document of the mutual

fund scheme. There are also exchange traded index funds launched by the mutual

funds which are traded on the stock exchanges.


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Mc KINSEY 7-S MODE

WHAT IS 7-S FRAMEWORK?

The 7 s frame work of mc Kinsey is a management model that describes the seven

factors to organize a company in a holistic and effective way. Together these

factors determine the way in which a corporation operates. Managers should take

into account all seven of these factors, to be sure of successful implementation of a

strategy. Large or small. They are all interdependent, so if you pay proper attention

to one of them, this may affect all others as well. On top of that, the relative

importance of each factor may vary overtime.

The outstanding feature of the 7- s model is that it has been tested extensively by

Mc Kinsey consultants in their studies of many companies. At the same time this

framework has been used by respected business schools such as Harvard and

Stanford.

Thus theory and practice seem to support each other in the study of management

perhaps the most surprising fact about the 7-s model is that it supports and is

similar to the framework of the managerial functions planning, organizing,

staffing, leading and controlling.


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STRATEGY

The Systematic Action and Allocation of Resources to Achieve Company Aims.

The main motive is to profit maximization, customer satisfaction, etc.

STRUCTURE

Organization Structure and Authority /Responsibility Relationships. It includes the

policies and procedures that govern the way in which the organization acts within

it and the environment. It provides the framework for relationships among different

parts of the organization. It sets out the formal reporting relationships, mode of

communication, their respective roles and rule and regulations for carrying out

different tasks.


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SYSTEMS

Procedures And Processes Such As Information Systems, Manufacturing

Processes, Budgeting And Control Processes. System in this framework stands for

the rules and regulations, procedures and practices that must be allowed to carry

out the tasks in the organization. A good system adds to the efficient in effective

working of the entrepreneur.

The bank follows CAPITY system. It has two back up in case of any data being

misplaced or lost. So there is enough safety of data and there is no risk of the data

being lost.

Each cluster, regional branch has a disaster management system which also acts as

a backup which ensures safety to the data.

STYLE

The Way Management Behaves and Collectively Spends Its Time To Achieve

Organizational goals. Style includes leadership style of top management and

overall operating style of the organization. Style impacts the norms people follow

and how they work and interact with each and with customers.

STAFF


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The people in the enterprise and their socialization into the organizational culture.

The organization has to look into its people, their backgrounds and competencies;

staff also includes the organization approaches to recruitment, selection and

specialization.

There is a periodic review of the staff and there are promotions, job rotation,

transfers,

Which all acts as a motivation to the staff.

SKILLS

Distinctive Capabilities of an Enterprise. Skills include the distinctive

competencies that reside in the organization. These can be distinctive competencies

of people, management practices, systems and or technology. What business

activities is the company good at performing?

SHARED VALUES

The Values Shared By the Members of an Organization. These values have great

meaning because they focus attention and provide a broader sense of purpose.

They also give a strong basis of stability to the organization in a rapidly changing

environment by providing a basic meaning to people working in the organization.


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2.1 McKinsey 7-Sframework with concern to ICICI BANK

STRATEGY

Appointment of Challenging Unit Manager

Appointment of challenging unit manager is the most successful strategy in

the ICICI BANK. Earlier unit manager was to lead the team which

consisting of both performing and non-performing advisors. But these

inactive advisors became bottleneck for the performance of the unit

manager. The unit manager was confuse about leading about the team

because variation between PREFERENCE, attitude and motivational level

among performing and non performing advisors.

THE job of challenging unit manager is to make active of inactive advisor.

His team consisting of only non-performing advisors. This leads to full


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focus of unit managers attention to those advisors. This strategy will save

huge amount of expenditure concerned to appointment of new advisors as

well as training to those advisors.

More focus on High Net worth individual

The company is targeting net worth individual like executives of IT

industries.

Companys major work force is concentrated on this segment, which is very

beneficial for the collection of large amount of premium. The smart work

will lead to easy achievement of the target fixed by the organization.

Excellent Flexibility in the product and services

The company having such products and services which will target each and

every target of potential customers. Flexibility concerned to Sum Assurance

and mode of payment, nominee surrender of policy, withdrawal of fund and

switching of fund.

Minimum administration charges

These minimum charges are very helpful in convincing the customer. It

leads to more trust in the long period of time and it will reduce risk on the

part of the advisor and company.

STRUCTURE:

Structure includes the policies and procedures that govern the way in which the

organization acts within it and the environment. It provides the framework for

relationships among different parts of organization. It sets out the formal reporting

relationships, mode of communication, their respective roles and rules and

regulations for carrying out different task. If not properly defined-detrimental


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effect on the effective and efficient working because motivation and morale is low,

decisions are delayed and of poor quality, the expenses rises, orders are lost due to

competition, lack of confidence. Structure of any organization has to answer the

following question-

What is the basic structural form?

How centralized versus how decentralized is the organization?

What is the relative status and power of the organization?

ORGANIZATIONAL STRUCTURE

SYSTEMS:

Chairman

Managing Director & CEO

Joint Managing Director

(Domestic Banking)

Joint Managing Director

(International Business)

Executive Director

(Corporate Center)

Executive Director

(Project Finance)

Executive Director

(Retail Banking)

Executive Director

(Wholesale Banking)

Sr. General Managers

General Managers


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System in this framework stands for the rules and regulation, procedures and

practices that must be allowed to carry out the tasks in the organization. A good

system adds to the efficient in effective working of the entrepreneur.

At ICICI BANK:

The procedure is followed is clear, transparent and complicated. For example in

the Consumer Retail Banking the process for making a deal is as follows;

Targets are set for the week and the month as a whole.

The Telemarketing Executive (TME) makes an introductory call to the potential

customer where in the TME introduces and explains about the company , the

financial products and services offered , in brief.TME then messages to get an

appointment with the interested potential customer. If the customer agrees, the

Personal Financial Consultant (PFC) meets the potential customer at the appointed

time and then explains about the products and services, facilities in a detailed

manner. The customer is asked for few documents and is required to fill in a form.

These documents are scrutinized by the team leader or the higher authority (if

necessary) and the appropriate decision is taken.

The procedure appears to be simple but a lot of hard work and dedication is

put in by every individual involved in the process at ICICI BANK, beginning from

the TME.

STYLE:


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Style includes leadership style of top management and overall operating style of

the organization. Style impacts the norms people follow and how they work and

interact with each and with customers.

How does top management make decisions- participatory versus top-down?

How do managers spend their time-in formal meeting, informal conversations, in

the field, with customers, etc.?

At ICICI BANK:

ICICI BANK follows a very ineffable style of functioning; Managers, staff,

etc. are approachable, a perfect blend of formal and informal approach. They

follow a system of rewarding. Rewards are given according to the performance

.Monetary and non-monetary incentives are given. Personal attention to every

individual especially the external trainees, helps in gaining additional knowledge

on various industries, their products. The theoretical concepts are made clearer

through their practical implications. Informal conversations, which develop

loyalty, motivation, dedication in the employees. Every Monday it holds meetings

where in the top management and employees collectively participate-targets for the

week is set, responsibilities are delegated suggestions are invited, etc.

STAFF:

The organization has to look into its people, their backgrounds, and

competencies, staff also includes, the organizations approaches to recruitment,

selection and specialization. How people are developed, how recruits are trained,

socialized, integrated, and how their careers are managed?

At ICICI Bank; there are approximately 150 employees.


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They are given regular training. On- the- job training provided.

They are involved in all the required meetings, activities.

Staffs are given the freedom to use their innovative and creative skills.

They have a provision of career development. Those interested in pursuing their

studies can do so. Get together are held for staffs to socialize.

Staff grievances are given a listening year.

SKILLS:

Skills include the distinctive competencies that reside in the

organization. These can be distinctive competencies of people, management

practices, systems and/or technology. What business activities is the company

distinctively good at performing? What new capabilities do the organization?

Needs to develop, which one does it need to unlearn to compete in the future. This

can be learning throughSWOT analysis.


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2.2 SWOT ANALYSIS:

Strength:

y ICICI BANK is the largest private sector bank in India in terms of assets.

y It is a Cash Rich Bank.

y Second Indian company to get listed in NYSE

y Asset base of Rs.1 lakh crore

y Foreign holding of 63%

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


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Weaknesses:

y As a private Bank it is less accepted

y Difficult to handle large number of customer

y Difficult to handle large amount of fund

.

Opportunity:

y Open new branches.

y Tapping new markets.

y Mergers with local Banks.

y Target rural market.

Threats:

y Other Banks are planning to offer similar/better services.

yMay not be opted by many middle class consumers as it is more elite classoriented, thus lose on market size.

y Economic policies controlled by RBI.

SHARED VALUES:

It refers t the core or fundamental values that are widely shared in the

organization and serve as guiding principles that are important. These values have

great meaning because they focus attention and provide a broader sense of purpose.

They also give a strong basis of stability to the organization in a rapidly changing

environment by providing a basic meaning to people working in the organization.


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Do people have a shared understanding of why a company exists?

Do people have a shared understanding of the vision of the company?

How do people describe the ways in which the company is distinctive? (e.g.; focus

on quality, emphasis on people).

ICICI Bank is a client/investor-oriented organization that has imbibed this quality

among all its members and employees. The whole unit works today towards the

growth and success of ICICI Bank.


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DESIGN OF THE STUDY

3.1 NEED OF THE STUDY

Mutual fund is one of the most important types of financial products in existence in

the market today. The other major types of financial product offering are

insurance, various banks and institutional deposits etc.When it comes to a financial

product like a mutual fund, emphasis has be paid not only on its financial aspects

like investment outlay and the resulting return cash flow stream but also on how

the product is offered to customers, who in this case present the investors. Thus we

can say that the investors response to a mutual fund is not determined only on the

basis of its financial aspects (which although are important) but also on how the

product is positioned and offered to the investor,

The starting point for any successful marketing is to know the Preferences of the

customers for the industry. This provides insights into the customers behavior and

his expectation from the industry players. A proper understanding of the

Preferences would definitely benefit the players

This survey attempts to know the mutual fund investors better. It examines some

interesting choices of the retail investor including the reasons behind investing in


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mutual fund and the risk tolerance levels of investors. The investors knowledge

about mutual funds and what according to him are the best mutual funds is also

analyzed. It is hoped that this survey in India would go a long way in benefiting the

mutual fund players. In Descriptive Research is all kind of surveys, including

3.2 STATEMENT OF THE PROBLEM

To determine the PREFERENCE towards investing in mutual funds and to review

the performance of various mutual fund schemes across specific study periods. As

in India the mutual fund percentage is very low which is 2% approximately, while

in the Countries like US, UK etc the mutual fund investment percent is more than

80%. Customers dont want to take risk because they dont have proper

knowledge about the investments in mutual funds. To identify the factors affecting

the investment decision of investors, and also identification of the main reasons

behind most of the investments.

3.3RESERCH OBJECTIVE

y To identify the objective of the investor for investing in a mutual fund.

y To identify the investment patterns of investors.

y To find out the risk tolerance factors of the investors.

y To study consumer PREFERENCE about time horizon and tax sensitivity

aspect of investing in mutual funds.

y To identify the objective of the investor for investing in a mutual fund.

y To identify the investment patterns of investors.

y To find out the risk tolerance factors of the investors.


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Questions that have been addressed include:

y The investors objective behind investing in a mutual fund.

y The risk tolerance factor for investing in a mutual fund.

y The underlying tax factor for investing in a mutual fund.

y The time horizon preferred by the investors for investing in a mutual fund.

3.4 METHODOLOGY OF RESERCH

Objective 1: To determine investor Preference towards investing in mutual funds

In order to determine investor Preference towards investing in mutual funds, a

survey was conducted for a sample of 150 respondents. The method of sampling

design adopted was convenience sampling. However to ensure that the sample

members were selected from visitors at various leading banks and mutual fund

offices. The specific individuals were selected at convenience.

The method of interviewing the respondents was personal interview. The research

instrument was a questionnaire. This was done to ensure comprehensiveness,

standardization and ease of the interviews.

The sample size of the 150 was selected to provide adequate coverage to both

groups namely current and potential investors. The analysis was done using

percentages, graphs and pie charts.

SOURCES OF DATA


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Sources of secondary data for the research

1. Companys brochures and catalogues

2. Companys website.

3. Reports of the company.

Sources of primary data

The sources of primary data was the descriptive research conducted using the

Questionnaire

SAMPLING DESIGN

Nature of Sampling

The basic idea of sampling is that by selecting some of the elements in a

population, we may draw conclusions about the entire population. A population

element is the subject on which the measurement is being taken. It is the unity of

study. While an element may be a person, it can just as easily be something else.

A population is the total collection of elements about which we wish to make some

inferences.

There are several compelling reasons for sampling, including:

(1) Lower cost,


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(2) Greater accuracy of results

(3) Greater speed of data collection and

(4) Availability of population elements.

SAMPLING METHOD

Sampling technique used in here is convenience sampling. A sample of 150

customers is interviewed.

SAMPLE SIZE

The sample size of the study was 150 respondents.

TOOLS AND TECHNIQUES OF DATA COLLECTION

There are two ways through which the data has been collected.

Primary data

Secondary data

PRIMARY DATA

Primary data collected is the data collected through

Questionnaire

Personal interview

Survey method

Report of the company


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SECONDARY DATA

Secondary data is that data which is obtained through

Companys catalogue.

Brochures

Magazines

Companys websites.

How to choose a convenience sample

Convenience sampling, as the name implies, is based on the convenience of the

researcher who is to select a sample. This type of sampling is also called accidental

sampling as the respondent in the sample are included in it merely on account of

their being available on the spot where the survey is in progress. Thus, a researcher

may stand at a certain prominent point and interview all those or selected people

who pass through at the place.

A survey based on a sample of respondents may not be useful if the respondents

are not representative of the population. It is not possible in the convenience

sampling to know the representative ness


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RESEARCH DESIGN

To achieve the objective of the study Descriptive research is used.

Meaning of Descriptive Research:

Descriptive Research includes surveys and fact finding enquires of different kinds.

The major purpose of Descriptive Research is description of the state of affairs as

it exists at present. The main characteristic of this method is that the researcher has

no control over the variables; he can only report what has happened or what is

happening. In social science and business research we quite often use the term ex

pos t facto research for Descriptive Research studies. Most Ex post facto research

projects are used for Descriptive studies in which the researcher seeks to measure

such times as, example, performance of the people. Ex post facto studies also

include attempts by Researchers to discover causes even when they cannot control

the variables. The method of Research utilized correlation methods.

3.5 SCOPE OF STUDY


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A mutual fund is a pool of money, collected from the investors, and is

invested according to certain investment objectives. A mutual fund is created when

investors put their money together. it is therefore a pool of the investors funds.

The most important characteristic of a mutual fund is that the contributors and the

beneficiaries of the fund are the same class of people, namely investors. The term

mutual fund means that 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 is the mutual funds. A mutual funds business is to invest the funds thus

collected, according to the wishes of the investors who created the pool.

The main scope of this study was to understand the customer needs and

requirements for ICICI bank.

y The study helps the bank to increase the sales of mutual fund according to

customer needs.

y The study helps the bank to arranging the mutual fund scheme according to

customer preference.

3.6LIMITATIONS OF THE STUDY

y The sample size for the study was 150 respondents which is small

y So the results may not be conclusive.

y Cost of carrying out a full study was a major limitation.

y The lengthy questionnaire could have resulted in non-response errors.

y Difficulty in reaching a large number of areas and high traveling was also a

hindrance to collect sufficient data.


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y Respondents bias may be present due to lot of open- ended questions in the

questionnaire.

INVESTOR PREFERENCE ANALYSIS

Respondents having investment in any kind of mutual fund scheme

TABLE 5.1

Particulars No. of Respondents Percentage

Current 49 33

Potential 101 67

Total 150 100

FIGURE 5.1.1


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Current investors are individuals who Potential investors are investors who intend

to invest in mutual funds sometime in future, but currently do not hold any mutual

fund investment.

In this survey, 33% of the respondents were current investors and 67% were

potential investors. This mix was intentional as the objective of this study is to

determine investor Preferences towards investing in mutual fund and hence the

potential investors should have a higher weight age in the sample size whene

presently investing in mutual fund.

Potential investors are investors who intend to invest in mutual funds sometime in

he future, but currently do not hold any mutual fund investment.

In this survey, 33% of the respondents were current investors and 67% were

potential investors. This mix was intentional as the objective of this study is to

determine investor Preferences towards investing in mutual fund and hence the

potential investors should have a higher weight age in the sample size when

INVESTOR'S STATUS

33%

67%

Current

Potential


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Compared to current investors. The ratio of potential to current investors in thus

2:1.

Respondents gender

TABLE 5.2

Particulars No of Respondents Percentage

Male 145 97

Female 5 3

Total 150 100

FIGURE 5.1.2


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The sample group was heavily weighted towards thee male sex. This because in a

conservative country like India even thought the lady of the house may be

working., the investment decisions are considered as male prerogative. It is the

man of the house who generally takes investment decisions for the entire family.

Therefore around 97% of the respondents were males and the rest 3% were

females.

Respondents age segments

TABLE5.3

Age

Category

No. of

Respondents

Percentage

20 - 29 67 45

30 - 39 43 29

40 - 49 21 14

50 - 59 14 9

Above

60

5 3

SEX RATIO

97%

3%

Male

Female


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Total 150 100

FIGURE 5.3.1

The age group of the respondents is by and large spread across all the age

segments. However, around 70% of the respondents come under the combined age

groups of 20 to 39 years.

Our interaction with mutual fund sales executives has revealed that individuals

falling under these age profiles are typically the most lucrative segment for mutual

fund investments. This is more due to their willingness to try out relatively new

forms of investments like mutual fund which are not that readily acceptable by

older people.

Investors in higher age groups typically prefer old tried and tested investment

avenues like bank deposits, real estate etc.

AG P O L

45%

29%

14%

9% 3% 20 - 29

30 - 39

40 - 49

50 - 59

Above 0


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Respondents education qualification

TABLE 5.4

Particulars No of

Respondents

Percentage

Under

Graduate

18 12

Graduate 58 39

Post

Graduate

61 40

Others 13 9

Total 150 100

FIGURE 5.4.1

QUAL F CA ON

12%

39%40%

9% UnderGraduate

Graduate

Post Graduate

Others


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The surveyed group was well educated with 39% being graduates and 40% being

postgraduates. Around 12% o the samples collected were under graduates.

This mix conforms to the overall composition of the high salary earning

burgeoning middle class, which is (when it comes to numbers), the largest market

segment or financial products like mutual fund.

Respondents annual family income

TABLE 5.5

Particulars No of

Respondants

Percentage

Less than

1,00,000

21 14

1,00,000 -

2,00,000

57 38

2,00,000 -

3,00,000

42 28

3,00,000 -

5,00,000

23 15

Above

5,00,000

7 5

Total 150 100

FIGURE 5.5.1


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The above table shows the breakup of the income profile of the respondents.

Majority of the respondents (66%) fall under the categories of annual income 1.0-

2.0

Lacks (38%) and 2.0 to 3.0 lacks (28%). A meager of only (5%) of the respondents

fall under the annual income of above 5lcks.Another (15%) of the respondents fall

between the annual incomes of 3-5 lacks.

Respondents saving in a month

TABLE 5.6


Upto 2000 43 29

2001 5000 60 40

5001 - 10,000 33 22

INCOMEPROFILE

14%

38%28%

15% 5%

Lessthan

1,00,000

1,00,000

-2,00,000

2,00,000 -

3,00,000

3,00,000 -

5,00,000

Above5,00,000


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10,001 - 20,000 11 7

Above 20,001 3 2

Total 150 100

FIGURE 5.6.1

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

SAVING HABITS

29%

40%

22%

7% 2%Upto 2000

2001 - 5000

5001 - 10,000

10,001 - 20,000Above 20,001


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2,000-5,000 per month. That with a monthly saving of above Rs.20, 000 was

abysmally small at 2%. This is in conformity with the average earning levels of

developing economies like India.

Main reason behind most of the investment decisions

TABLE 5.7

Particulars No of

Respondents

Percentage

Safety o

Investment

28 19

Generate Regular

Income

30 20

Avail Tax benefits 24 16

Capital Gains 22 21

Have a secured

future

35 23

Others 2 1

Total 150 100

FIGURE 5.7.1


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This section of the survey was aimed at understanding the main reasons behind the

investment decisions made by the individual. The question permitted multiple

responses by the same individual.

Amongst all the primary objectives, the desire for a secure future (23%)was the

most frequently selected category followed closely by capital gains (21%) safety of

investments and desire for regular income were other important investment

determinants. The desire for tax benefits was the least influencing factor in

investment decision-making.

Other influences on investment decisions

TABLE 5.8

Particulars No of

Respondants

Percentage

Future Outlook 17 11

Brand Value 30 20

Risk factor

involved

35 23

Return on 36 24

0

5

10

15

20

25

Safetyo

Investment

Avail Tax

Benefits

Havea

Secured

Future

INV M N OBJ C IV


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Investment

Tax Incentives 15 10

Current / Political

scenario

18 12

Total 150 100

FIGURE 5.8.1

The risk factors involved and the returns on the investment have major secondary

influence on the investment decision. They are followed closely by the brand value

of the issuer. The current economic / political scenario, future outlook and the tax

incentives have a limited influence on investors.

If the above factors are to be grouped together on the basis of similar

characteristics; risk, return and brand value of the issuer can be classified as

0

5

10

15

20

25

Future

Outlook

Riskfactor

involved

Tax

Incentives

TOP OF THE MIND


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internal factors whereas current scenario, future outlook and tax incentives are

factors external to the security.

We can hence conclude that it is the factors that are inherent in the security itself

which have a greater influence on the investment decision rather than factors that

are external to the specific security

Investment avenues

TABLE 5.9

Particulars No of

Respondents

Percentage

Mutual Fund 63 16

Banking

Products

35 23

Insurance

Products

28 19

Corporate

Debentures

11 7

Govt. Securities 12 8

Real Estate 6 4

Gold 8 5

Equity Shares 27 18

Total 159 100


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FIGURE 5.9.1

Amongst the various investments avenues, baking products are the most common

with 23% of the respondents having invested or intending to do so in them. Equity

shares and insurance products are 18% and 19% respectively. A mutual fund

comes next at 16%. Not many of the respondents have invested / likely to do so in

the case of G-Sec, corporate debentures. Real estates and gold stand much lower in

acceptance ratings.

It must be noted here that 67% of the respondents are potential investors who have

not made any mutual fund investment till date (see question 1). We have now seen

that only 16% of the respondents have chosen mutual fund as an avenue for

investment made / do so in the future. Hence it can be said that there exists

significant scope for increase in the awareness and acceptance of mutual funds

amongst the investor community.

0

5

10

15

20

25

M.F B.P Gold E.S

INVESTMENT AVENUES

I.P CD GS RE


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Factor influencing investment decisions

TABLE5.10

Particulars No of

Respondants

Percentage

Economic Scenario 27 18

und performance in

the past

41 27

Mutual Fund

Company Image

48 32

Fund Manager

Image

14 9

Tax Incentives 21 14

Total 150 100

FIGURE 5.10.1

The company image is by far the foremost factor which influences the investment

decision when evaluating investment in mutual fund with 32% of the respondents

0

5

10

15

20

25

30

35

Economic

Scenario

M

t

a

F

nd

CompanyImage

Tax

Incentives

DECI IO AFFECTING FACTO


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selecting it. The fund performance is the second most determining variable at 27%.

Economic scenario tax incentives have limited influence.

Fund manager image has the least influence thereby suggesting that the mutual

fund industry, at least as of date does not have any individuals like Marc Phobius

oh quantum funds who enjoy a large than life image such that they are able to

attract investors on the basis of their name alone. Since company image plays such

a determining role in mutual fund investment decisions, it is available for all the

mutual fund companies to invest heavily in brand building. This exercise along

with highlighting of past performance of same scheme / other schemes by the same

company will go to a large extent in growth of the industry in general and the fund

in particular.

Importance of tax incentive factor while making an investment in

mutual fund

TABLE 5.11


Very Important 54 36

Somewhat Important 59 39

Neutral 27 18

Somewhat unimportant 4 3

Not at all important 6 4


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Total 150 100

FIGURE 5.11.1

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

has when evaluating mutual fund decision in particular. In the earlier questions (q7

and q8) we have evaluated the impact of tax incentives on investments in general.The table reveals that 75% of the respondents consider tax incentives as very

important and some what important when making mutual fund investments. The

percentages o respondents who dont associate any importance to tax incentives in

mutual fund investments are very low at 7%.

TAX INCENTIVE FACTO

36%

39%

18%

3%

% VeryImportant

SomewhatImportant

Neutra

Somewhatunimportant

Notata

important


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This finding reveals that the mutual industry is still to growth out of the image of

being merely a haven for tax protection. The life insurance players in India are also

facing the same problem with bulk of the life insurance polices being sold only for

the purposes of tax rebates u/s 88 and not has a means of saving and risk

protection. The mutual fund industry needs to grow out this image because if the

future tax incentives on mutual fund were to be removed then this industry would

get very adversely hit. The mutual fund companies need to promote the image of

mutual fund as an attractive returns avenue with low risks association.

Respondents understanding about the concept and working of

Mutual fund

TABLE 5.12

Particulars No of

Respondents

Percentage

Very

Good

11 7

Good 48 32

Average 67 45

Poor 18 12


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Very Poor 6 4

Total 150 100

FIGURE5.12.1

In this question we attempt to understand from the respondents their knowledge

about mutual funds. The highest frequency is for average category (45%) with only

32% of the respondents rating their knowledge as good. Only 7% rate themselves

as were good.

In light of the above it is advisable that the mutual fund companies should

undertake campaigns that are designed to increase the understanding of the concept

and working of mutual fund along with their unique advantages. This ids importantbecause until and unless an individuals knows properly what the entire concept of

mutual fund is all about, he will not at all be convinced to invests his hard earn

money in them. This would probably also is a reasons for the low popularity of

mutual fund in India especially when compare to other countries like USA, UK etc.

KNOWLEDGEOFMF

7%

32%

45%

12%4%

Ver

d

d

Aver

ge

P

r

Ver

P r


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Advertising media having the highest influence on the

Mutual fund investment decisions

TABLE 5.13


Print Media 98 65

Electronic Media 24 16

Pamphlets] 18 12

Hoardings & Billboards 10 7

Total 150 100

FIGURE 5.13.1


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65% of the respondents fell that the print media would have the highest influence

on their mutual fund investment decision. The influence of electronic media and

pamphlets is limited at 16% and 12% respectively. Hoarding and billboards have

negligible influence at only 7%.

In light of the above finding, we can safely conclude that the communication mix

of a mutual fund company should be heavily weighted in favor of the print media.

What further needs to be ascertained is that which category of the print media such

as newspapers, magazines etc have a higher impact and also specific media vehicle

in these categories

Advisor influencing the investment decision in mutual fund

TABLE 5.14

Particulars No of

Respondents

Percentage

Fund Manager 27 18

Your Friends & Relatives 33 32

Your Financial Advisor / CA 54 36

ADVERTISEMENT

65%16%

12%7%

PrintMedia

ElectronicMedia

Pamphlets

Hoardin

s & Billboards


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None but depend on your personal

analysis

36 24

Total 150 100

FIGURE 5.14.1

Amongst the personal sources that have a bearing on the mutual fund investment

decision of the respondents, the financial advisor/ CA of the individual as the

highest influence (36%). Friends and relatives also play a determining role. One

quarter of the respondents do not get influenced by the advice of others but instead

rely upon their own analysis. The low popularity of fund managers at 18%

suggests that majority of the investing community view their advise as partisan to

the company which they work for.

Respondents aware of mutual fund schemes of companies

TABLE 5.15


ICICI 80 20

Franklin Templeton 92 24

OTHERINFORMATIONSOURCES

16%

29%33%

22%

FundMana

er

YourFriends &Relatives

YourFinancialAdvisor /CA

Nonebutdependonyourpersonalanalysis


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FIGURE 5.15.1

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

were aware

0

5

10

15

20

25

ICICI HDFC Reliance

Capital

Others

MF's HAVING HIGH RECALL

HDFC 85 22

UTI 70 18

Reliance Capital 30 8

HSBC 22 6

Others 11 2

Total 390 100


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Of Franklin Templeton. ICICI and HDFC came close at 80% and 85%

respectively. UTI despite being the oldest mutual fund in the country is lagging

behind the new private mutual fund companies with an awareness score of 70%.

Another surprising discovery is that RELIANCE CAPITAL ranks low at 13% even

though it is quite old and their can be a possibility of lack of advertising or lack of

awareness among the investors regarding RELIANE CAPITAL. Although Franklin

Templeton as an institution is new entrants in the Indian financial sector

(December 1993) when compared to other establish players the fact that it has

achieved such high awareness is significant. The possible reason could be its

strategy of selling its schemes through other private sector banks like ICICI Bank,

HDFC Bank, UTI Bank and reliance capital which has paid dividends and enable it

to overcome its constrains of not having its own infra structure in terms of sales

offices etc.

Respondents risk return disposition

A (Respondents willing to undertake risk

TABLE 5.16.A

Particulars No of

Respondents

Percentage

High Risk 17 11


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FIGURE 5.16.1.A

B) Expected return:

TABLE 5.16.B

RI K PROFILE

11%

52%

33%

4%H

gh R

sk

Moder te R

sk

Low R

sk

N

Moderate

Risk

78 52

Low Risk 49 33

Nil 6 4

Total 150 100


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Particulars No of Respondants Percentage

5% - 10% 32 21

11% - 19% 96 64

20% - 29% 12 8

Above 30% 6 4

Can't say 4 3

Total 150 100

FIGURE 5.16.1.B

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

respondents. Our findings clearly reveal that the bulk of the respondents fall under

the moderate returns category with 52% willing to bear moderate risk and 64%

expecting returns in the band of 11% - 19%.

The limitation of such questions is that the findings invariably tend to confirm to a

typical bell shaped curve. This is because it is generally seen that majority of the

respondents invariably choose to clarify themselves under the middle score

category and very few rate themselves as belonging to any one of the extreme tail

positions.

RETURN EXPECTED

21%

64%

8% 4% 3%5% - 10%

11% - 19%

20% - 29%

Above30%

Can'tsay


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Opinion about risk returns characteristics of mutual fund Vs.

Direct investment in stock markets:

TABLE 5.17

Particulars No of

Respondents

Percentage

Same

Relationship

41 27

Mutual Fund

better

81 54

Direct Investment

better

28 19

Total 150 100

FIGURE 5.17.1

The main USP i.e. unique selling proposition of the entire concept of mutual funds

is that their expert investment managers are better equipped than individual

RISKRE

URNCHARAC

ERISTICS

27

54

19

1

2

3


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investors in making investment decisions accurately. These results in lower risk

exposure for the same return when compared to equivalent investment avenues like

direct investment in stocks.

The belief seems to be well accepted by the respondents as a clear majority (54%)

believes that they provide a means to reduce risk for the same return when

compared to direct investment in stock markets. This is vital because unless and

until investors do not believe in the superiority of the mutual funds when compared

to direct investment on their own, they will obviously not invest in them.

However, there exists considerable room for the expansion as 27% believe that

they offer same risk return relationship and 19% believe that direct investment is

more beneficial. The latter could be those who have adequate expertise when it

comes to investments in stocks.

Time horizon for mutual funds and stocks

TABLE 5.18

Particulars No of

Respondants

Percentage

Upto a Year 42 28

Between 1 - 3

Years

80 53

Between 3 - 5 22 15


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Years

Greater than 5

Years

6 4

Total 150 100

FIGURE 5.18.1

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

over a year to yield substantial returns. Since 53% of the respondents have a time

horizon of 1-3 years, mutual fund companies are better equipped to convince such

INVESTMENTTIMEHORIZON

28%

53%

15% 4% Uptoa Year

etween1 - 3 Years

Between3 - 5 Years

Greaterthan5 Years


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investors to participate in mutual fund schemes that have

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