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A PROJECT REPORT

ON

“MUTUAL FUNDS IS THE BETTER


INVESTMENTS PLAN”

Submitted in partial fulfillment for

MASTER OF BUSINESS ADMIMISTRATION

Programme of

INSTITUTE OF MANAGEMENT TECHNOLOGY

GHAZIABAD

Batch2005-08

Submitted by :- Under Guidance :-

AKHILESH MISHRA CA SHARAD CHAUHAN

MBA( Three Year Programme) Manager Accounts

Batch (2005-2008) Uttam Sugar Mills Limited

Enrolment No-52102689 Corprote office Noida

Department of Business Management

INSTITUTE OF MANAGEMENT TECHNOLOGY

GHAZIABAD
ACKNOWLEDGEMENT

With regard to my Project with Mutual Fund I would like to thank each and every one

who offered help, guideline and support whenever required.

First and foremost I would like to express gratitude to Manager SBI kanwali

Road Dehradoon and other staffs for their support and guidance in the Project work.. I

am extremely grateful to my guide, CA Sharad Chauhan for their valuable guidance

and timely suggestions. I would like to thank all faculty members of Uttam Sugar Mills

Limited for the valuable guidance& support.

I would also like to extend my thanks to my members and friends for their

support specially .MCA Anuj Panday officer I.T.Uttam Sugar Mills Limited Sharanpur

& Mr. Rajeev Goyal consultant, Sales tax, income tax .And lastly, I would like to

express my gratefulness to the parent’s for seeing me through it all.

AKHILESH MISHRA
CERTIFICATE

This is to certify that Mr. Akhilesh Mishra a student of IMT-CDL Ghazibad has completed

project work on “MUTUAL FUNDS IS THE BETTER INVESTMENTS PLAN” under my

guidance and supervision.

I certify that this is an original work and has not been copied from any source.

Signature of Guide

Name of Project Guide CA Sharad Chauhan

Date-
DECLERATION

I hereby declare that this Project Report entitled “THE MUTUAL FUND IS BETTER
INVESTMENT PLAN in SBI Mutual Fund submitted in the partial fulfillment of the
requirement of Master of Business Administration (MBA) of INSTITUTE OF
MANAGEMET TECHNOLOGY, GHAZIABAD is based on primary & secondary
data found by me in various departments, books, magazines and websites & Collected
by me in under guidance of C.A. Sharad Chauhan.

DATE: AKHILESH MISHRA

MBA (Three Years)

Enrollment No.52102689
EXECUTIVE SUMMARY

In few years Mutual Fund has emerged as a tool for ensuring one’s financial well

being. Mutual Funds have not only contributed to the India growth story but have also

helped families tap into the success of Indian Industry. As information and awareness is

rising more and more people are enjoying the benefits of investing in mutual funds.

The main reason the number of retail mutual fund investors remains small is that nine

in ten people with incomes in India do not know that mutual funds exist. But once

people are aware of mutual fund investment opportunities, the number who decide to

invest in mutual funds increases to as many as one in five people. The trick for

converting a person with no knowledge of mutual funds to a new Mutual Fund

customer is to understand which of the potential investors are more likely to buy

mutual funds and to use the right arguments in the sales process that customers will

accept as important and relevant to their decision.

This Project gave me a great learning experience and at the same time it gave me

enough scope to implement my analytical ability. The analysis and advice presented in

this Project Report is based on market research on the saving and investment practices

of the investors and preferences of the investors for investment in Mutual Funds. This

Report will help to know about the investors’ Preferences in Mutual Fund means Are

they prefer any particular Asset Management Company (AMC), Which type of Product

they prefer, Which Option (Growth or Dividend) they prefer or Which Investment

Strategy they follow (Systematic Investment Plan or One time Plan). This Project as a

whole can be divided into two parts.


The first part gives an insight about Mutual Fund and its various aspects, the Company

Profile, Objectives of the study, Research Methodology. One can have a brief

knowledge about Mutual Fund and its basics through the Project.

The second part of the Project consists of data and its analysis collected through survey

done on 200 people. For the collection of Primary data I made a questionnaire and

surveyed of 200 people. I also taken interview of many People those who were coming

at the SBI Branch where I done my Project. I visited other AMCs in Dehradoon to get

some knowledge related to my topic. I studied about the products and strategies of

other AMCs in Dehradoon to know why people prefer to invest in those AMCs. This

Project covers the topic “THE MUTUAL FUND IS BETTER INVESTMENT PLAN.”

The data collected has been well organized and presented. I hope the research findings

and conclusion will be of use.


CONTENTS

Acknowledgement

Declaration

Executive Summary

Chapter - 1 INTRODUCTION

Chapter - 2 COMPANY PROFILE

Chapter - 3 OBJECTIVES AND SCOPE

Chapter - 4 RESEARCH METHODOLOGY

Chapter - 5 DATA ANALYSIS AND INTERPRETATION

Chapter - 6 FINDINGS AND CONCLUSIONS

Chapter - 7 SUGGESTIONS & RECOMMENDATIONS

BIBLIOGRAPHY

MUTUAL FUNDS
ALL ABOUT MUTUAL FUNDS

 WHAT IS MUTUAL FUND

 BY STRUCTURE

 BY NATURE

 EQUITY FUND

 DEBT FUNDS

 BY INVESTMENT OBJECTIVE

 OTHER SCHEMES

 PROS & CONS OF INVESTING IN MUTUAL FUNDS

 ADVANTAGES OF INVESTING MUTUAL FUNDS

 DISADVANTAGES OF INVESTING MUTUAL FUNDS

 MUTUAL FUNDS INDUSTRY IN INDIA

 MAJOR PLAYERS OF MUTUAL FUNDS IN INDIA

 HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

 CATEGORIES OF MUTUAL FUNDS

 INVESTMENT STRATEGIES

 WORKING OF A MUTUAL FUND

 GUIDELINES OF THE SEBI FOR MUTUAL FUND

 COMPANIES DISTRIBUTION CHANNELS

 DOES FUND PERFORMANCE AND RANKING PERSIST?

 PORTFOLIO ANALYSIS TOOLS


RESEARCH REPORT

 OBJECTIVE OF RESEARCH

 SCOPE OF THE STUDY

 DATA SOURCES

 SAMPLING

 DATA ANALYSIS

 QUESTIONNAIRE
Chapter - 1

Introduction
INTRODUCTION TO MUTUAL FUND AND ITS VARIOUS

ASPECTS.

Mutual fund is a trust that pools the savings of a number of investors who share a

common financial goal. This pool of money is invested in accordance with a stated

objective. The joint ownership of the fund is thus “Mutual”, i.e. the fund belongs to all

investors. 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 appreciations realized are shared by its unit holders in

proportion 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. A

Mutual Fund is an investment tool that allows small investors access to a well-

diversified portfolio of equities, bonds and other securities. Each shareholder

participates in the gain or loss of the fund. Units are issued and can be redeemed as

needed. The funds Net Asset value (NAV) is determined each day.

Investments in securities are spread across a wide cross-section of industries and

sectors and thus the risk is reduced. Diversification reduces the risk because all stocks

may not move in the same direction in the same proportion at the same time. Mutual

fund issues units to the investors in accordance with quantum of money invested by

them. Investors of mutual funds are known as unit holders.


When an investor subscribes for the units of a mutual fund, he becomes part owner of

the assets of the fund in the same proportion as his contribution amount put up with the

corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual

fund shareholder or a unit holder.

Any change in the value of the investments made into capital market instruments (such

as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV

is defined as the market value of the Mutual Fund scheme's assets net of its liabilities.

NAV of a scheme is calculated by dividing the market value of scheme's assets by the

total number of units issued to the investors.


ADVANTAGES OF MUTUAL FUND

• Portfolio Diversification

• Professional management

• Reduction / Diversification of Risk

• Liquidity

• Flexibility & Convenience

• Reduction in Transaction cost

• Safety of regulated environment

• Choice of schemes

• Transparency

DISADVANTAGE OF MUTUAL FUND

• No control over Cost in the Hands of an Investor

• No tailor-made Portfolios

• Managing a Portfolio Funds

• Difficulty in selecting a Suitable Fund Scheme


HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

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. Though the

growth was slow, but it accelerated from the year 1987 when non-UTI players entered

the Industry.

In the past decade, Indian mutual fund industry had seen a dramatic improvement, both

qualities wise as well as quantity wise. Before, the monopoly of the market had seen an

ending phase; the Assets Under Management (AUM) was Rs67 billion. The private

sector entry to the fund family raised the Aum to Rs. 470 billion in March 1993 and till

April 2004; it reached the height if Rs. 1540 billion.

The Mutual Fund Industry is obviously growing at a tremendous space with the mutual

fund industry can be broadly put into four phases according to the development of the

sector. Each phase is briefly described as under.

First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament 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 the

Industrial 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 Canbank Mutual Fund (Dec 87), 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)

1993 was the year in which the first Mutual Fund Regulations came into being, under

which all mutual funds, except UTI were to be registered and governed. The erstwhile

Kothari Pioneer (now merged with Franklin Templeton) was the first private sector

mutual fund registered in July 1993.

The 1993 SEBI (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. As at the end of January 2003, there were 33

mutual funds with total assets of Rs. 1,21,805 crores.

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

of India 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 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. consolidation

and growth. As at the end of September, 2004, there were 29 funds, which manage

assets of Rs.153108 crores under 421 schemes.


CATEGORIES OF MUTUAL FUND:
Mutual funds can be classified as follow :

 Based on their structure:

• Open-ended funds: Investors can buy and sell the units from the fund, at any point

of time.

• Close-ended funds: These funds raise money from investors only once. Therefore,

after the offer period, fresh investments can not be made into the fund. If the fund is

listed on a stocks exchange the units can be traded like stocks (E.g., Morgan Stanley

Growth Fund). Recently, most of the New Fund Offers of close-ended funds provided

liquidity window on a periodic basis such as monthly or weekly. Redemption of units

can be made during specified intervals. Therefore, such funds have relatively low

liquidity.

 Based on their investment objective:

Equity funds: These funds invest in equities and equity related instruments. With

fluctuating share prices, such funds show volatile performance, even losses. However,

short term fluctuations in the market, generally smoothens out in the long term, thereby

offering higher returns at relatively lower volatility. At the same time, such funds can

yield great capital appreciation as, historically, equities have outperformed all asset

classes in the long term. Hence, investment in equity funds should be considered for a

period of at least 3-5 years. It can be further classified as:


i) Index funds- In this case a key stock market index, like BSE Sensex or Nifty is

tracked. Their portfolio mirrors the benchmark index both in terms of composition

and individual stock weightages.

ii) Equity diversified funds- 100% of the capital is invested in equities spreading

across different sectors and stocks.

iii|) Dividend yield funds- it is similar to the equity diversified funds except that they

invest in companies offering high dividend yields.

iv) Thematic funds- Invest 100% of the assets in sectors which are related through

some theme.

e.g. -An infrastructure fund invests in power, construction, cements sectors etc.

v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking sector

fund will invest in banking stocks.

vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors.

Balanced fund: Their investment portfolio includes both debt and equity. As a result, on
the risk-return ladder, they fall between equity and debt funds. Balanced funds are the ideal

mutual funds vehicle for investors who prefer spreading their risk across various instruments.

Following are balanced funds classes:

i) Debt-oriented funds -Investment below 65% in equities.

ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.


Debt fund: They invest only in debt instruments, and are a good option for investors

averse to idea of taking risk associated with equities. Therefore, they invest exclusively

in fixed-income instruments like bonds, debentures, Government of India securities;

and money market instruments such as certificates of deposit (CD), commercial paper

(CP) and call money. Put your money into any of these debt funds depending on your

investment horizon and needs.

i) Liquid funds- These funds invest 100% in money market instruments, a large

portion being invested in call money market.

ii) Gilt funds ST- They invest 100% of their portfolio in government securities of and

T-bills.

iii) Floating rate funds - Invest in short-term debt papers. Floaters invest in debt

instruments which have variable coupon rate.

iv) Arbitrage fund- They generate income through arbitrage opportunities due to mis-

pricing between cash market and derivatives market. Funds are allocated to equities,

derivatives and money markets. Higher proportion (around 75%) is put in money

markets, in the absence of arbitrage opportunities.

v) Gilt funds LT- They invest 100% of their portfolio in long-term government

securities.
vi) Income funds LT- Typically, such funds invest a major portion of the portfolio in

long-term debt papers.

vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an

exposure of 10%-30% to equities.

viii) FMPs- fixed monthly plans invest in debt papers whose maturity is in line with

that of the fund.


INVESTMENT STRATEGIES

1. Systematic Investment Plan: under this a fixed sum is invested each month on a

fixed date of a month. Payment is made through post dated cheques or direct debit

facilities. The investor gets fewer units when the NAV is high and more units when the

NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA)

2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and

give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the

same mutual fund.

3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund

then he can withdraw a fixed amount each month.


RISK V/S. RETURN:
Chapter – 2

Company Profile

INTRODUCTION TO SBI MUTUAL FUND

SBI Funds Management Pvt. Ltd. is one of the leading fund houses in the

country with an investor base of over 4.6 million and over 20 years of rich
experience in fund management consistently delivering value to its investors.

SBI Funds Management Pvt. Ltd. is a joint venture between 'The State Bank of

India' one of India's largest banking enterprises, and Société Générale Asset

Management (France), one of the world's leading fund management companies

that manages over US$ 500 Billion worldwide.

Today the fund house manages over Rs 28500 crores of assets and has a diverse

profile of investors actively parking their investments across 36 active schemes.

In 20 years of operation, the fund has launched 38 schemes and successfully

redeemed 15 of them, and in the process, has rewarded our investors with

consistent returns. Schemes of the Mutual Fund have time after time

outperformed benchmark indices, honored us with 15 awards of performance

and have emerged as the preferred investment for millions of investors. The trust

reposed on us by over 4.6 million investors is a genuine tribute to our expertise

in fund management.

SBI Funds Management Pvt. Ltd. serves its vast family of investors through a

network of over 130 points of acceptance, 28 Investor Service Centres, 46

Investor Service Desks and 56 District Organizers.SBI Mutual is the first bank-

sponsored fund to launch an offshore fund – Resurgent India Opportunities Fund.

Growth through innovation and stable investment policies is the SBI MF credo.

PRODUCTS OF SBI MUTUAL FUND

Equity schemes
The investments of these schemes will predominantly be in the stock markets

and endeavor will be to provide investors the opportunity to benefit from the

higher returns which stock markets can provide. However they are also exposed

to the volatility and attendant risks of stock markets and hence should be

chosen only by such investors who have high risk taking capacities and are

willing to think long term. Equity Funds include diversified Equity Funds,

Sectoral Funds and Index Funds. Diversified Equity Funds invest in various

stocks across different sectors while sectoral funds which are specialized Equity

Funds restrict their investments only to shares of a particular sector and hence,

are riskier than Diversified Equity Funds. Index Funds invest passively only in

the stocks of a particular index and the performance of such funds move with

the movements of the index.

 Magnum COMMA Fund

 Magnum Equity Fund

 Magnum Global Fund

 Magnum Index Fund

 Magnum Midcap Fund

 Magnum Multicap Fund

 Magnum Multiplier plus 1993

 Magnum Sectoral Funds Umbrella

 MSFU- Emerging Business Fund

 MSFU- IT Fund
 MSFU- Pharma Fund

 MSFU- Contra Fund

 MSFU- FMCG Fund

 SBI Arbitrage Opportunities Fund

 SBI Blue chip Fund

 SBI Infrastructure Fund - Series I

 SBI Magnum Taxgain Scheme 1993

 SBI ONE India Fund

 SBI TAX ADVANTAGE FUND - SERIES I

Debt schemes

Debt Funds invest only in debt instruments such as Corporate Bonds,

Government Securities and Money Market instruments either completely

avoiding any investments in the stock markets as in Income Funds or Gilt Funds

or having a small exposure to equities as in Monthly Income Plans or Children's

Plan. Hence they are safer than equity funds. At the same time the expected

returns from debt funds would be lower. Such investments are advisable for the

risk-averse investor and as a part of the investment portfolio for other investors.

• Magnum Children’s benefit Plan

• Magnum Gilt Fund


• Magnum Income Fund

• Magnum Insta Cash Fund

• Magnum Income Fund- Floating Rate Plan

• Magnum Income Plus Fund

• Magnum Insta Cash Fund -Liquid Floater Plan

• Magnum Monthly Income Plan

• Magnum Monthly Income Plan - Floater

• Magnum NRI Investment Fund

• SBI Premier Liquid Fund

BALANCED SCHEMES

Magnum Balanced Fund invests in a mix of equity and debt investments. Hence

they are less risky than equity funds, but at the same time provide

commensurately lower returns. They provide a good investment opportunity to

investors who do not wish to be completely exposed to equity markets, but is

looking for higher returns than those provided by debt funds.

• Magnum Balanced Fund


COMPETITORS OF SBI MUTUAL FUND

Some of the main competitors of SBI Mutual Fund in Dehradoon are as

Follows:

i. ICICI Mutual Fund

ii. Reliance Mutual Fund

iii. UTI Mutual Fund

iv. Birla Sun Life Mutual Fund

v. Kotak Mutual Fund

vi. HDFC Mutual Fund

vii. Sundaram Mutual Fund

viii. LIC Mutual Fund

ix. Principal

x. Franklin Templeton

AWARDS AND ACHIEVEMENTS


SBI Mutual Fund (SBIMF) has been the proud recipient of the ICRA Online Award - 8

times, CNBC TV - 18 Crisil Award 2006 - 4 Awards, The Lipper Award (Year 2005-

2006) and most recently with the CNBC TV - 18 Crisil Mutual Fund of the Year Award

2007 and 5 Awards for our schemes.


Chapter - 3

Objectives and scope


OBJECTIVES OF THE STUDY

1. To find out the Preferences of the investors for Asset Management

Company.

2. To know the Preferences for the portfolios.

3. To know why one has invested or not invested in SBI Mutual fund

4. To find out the most preferred channel.

5. To find out what should do to boost Mutual Fund Industry.


Scope of the study

A big boom has been witnessed in Mutual Fund Industry in resent times. A large

number of new players have entered the market and trying to gain market share in this

rapidly improving market.

The research was carried on in Dehradoon. I had been sent at one of the branch of State

Bank of India Dehradoon where I completed my Project work. I surveyed on my

Project Topic “A study of preferences of the Investors for investment in Mutual Fund”

on the visiting customers of the SBI Boring Canal Road Branch.

The study will help to know the preferences of the customers, which company,

portfolio, mode of investment, option for getting return and so on they prefer. This

project report may help the company to make further planning and strategy.
Chapter – 4

Research Methodology
RESEARCH METHODOLOGY

This report is based on primary as well secondary data, however primary data

collection was given more importance since it is overhearing factor in attitude studies.

One of the most important users of research methodology is that it helps in identifying

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

alternative solution to the problem .It also helps in collecting the vital information that

is required by the top management to assist them for the better decision making both

day to day decision and critical ones.

Data sources:

Research is totally based on primary data. Secondary data can be used only for the

reference. Research has been done by primary data collection, and primary data has

been collected by interacting with various people. The secondary data has been

collected through various journals and websites.

Duration of Study:

The study was carried out for a period of two months, from 30th May to 30th July 2008.
Sampling:

 Sampling procedure:

The sample was selected of them who are the customers/visitors of State Bank if India,

Boring Canal Road Branch, irrespective of them being investors or not or availing the

services or not. It was also collected through personal visits to persons, by formal and

informal talks and through filling up the questionnaire prepared. The data has been

analyzed by using mathematical/Statistical tool.

 Sample size:

The sample size of my project is limited to 200 people only. Out of which only 120

people had invested in Mutual Fund. Other 80 people did not have invested in Mutual

Fund.

 Sample design:

Data has been presented with the help of bar graph, pie charts, line graphs etc.
Limitation:

 Some of the persons were not so responsive.

 Possibility of error in data collection because many of investors may have not

given actual answers of my questionnaire.

 Sample size is limited to 200 visitors of State Bank of India , Boring Canal Road

Branch, Dehradoon out of these only 120 had invested in Mutual Fund. The
sample.

size may not adequately represent the whole market.

 Some respondents were reluctant to divulge personal information which can

affect the validity of all responses.

 The research is confined to a certain part of Dehradoon.


Chapter – 5

Data Analysis
&
Interpretation
ANALYSIS & INTERPRETATION OF THE DATA

1. (a) Age distribution of the Investors of Dehradoon

Age Group <= 30 31-35 36-40 41-45 46-50 >50

No. of 12 18 30 24 20 16
Investors

35
Investors invested in Mutual Fund

30

25

20

15 30
24
10 18 20
16
5 12

0
<=30 31-35 36-40 41-45 46-50 >50
Age group of the Investors

Interpretation:
According to this chart out of 120 Mutual Fund investors of Dehradoon the most are in

the age group of 36-40 yrs. i.e. 25%, the second most investors are in the age group of

41-45yrs i.e. 20% and the least investors are in the age group of below 30 yrs.

(b). Educational Qualification of investors of Dehradoon

Educational Qualification Number of Investors

Graduate/ Post Graduate 88

Under Graduate 25

Others 7

Total 120
6%
23%

71%

Graduate/Post Graduate Under Graduate Others

Interpretation:
Out of 120 Mutual Fund investors 71% of the investors in Dehradoon are

Graduate/Post Graduate, 23% are Under Graduate and 6% are others (under HSC).

c). Occupation of the investors of Dehradoon

Occupation No. of Investors


Govt. Service 30
Pvt. Service 45
Business 35
Agriculture 4
Others 6

50
No. of Investors

40
30
20 45
35 30
10
4 6
0
Govt. Pvt. Business Agriculture Others
Service Service
Occupation of the customers
Interpretation:

In Occupation group out of 120 investors, 38% are Pvt. Employees, 25% are

Businessman, 29% are Govt. Employees, 3% are in Agriculture and 5% are in

others.

(d). Monthly Family Income of the Investors of Dehradoon.

Income Group No. of Investors


<=10,000 5
10,001-15,000 12
15,001-20,000 28
20,001-30,000 43
>30,000 32

50
45
40
No. of Investors

35
30
25
20 43
15 32
28
10
5 12
5
0
<=10 10-15 15-20 20-30 >30
Income Group of the Investorsn (Rs. in Th.)

Interpretation:

In the Income Group of the investors of Dehradoon, out of 120 investors, 36%

investors that is the maximum investors are in the monthly income group Rs.
20,001 to Rs. 30,000, Second one i.e. 27% investors are in the monthly

income group of more than Rs. 30,000 and the minimum investors i.e. 4%

are in the monthly income group of below Rs. 10,000

(2) Investors invested in different kind of investments.

Kind of Investments No. of Respondents


Saving A/C 195
Fixed deposits 148
Insurance 152
Mutual Fund 120
Post office (NSC) 75
Shares/Debentures 50
Gold/Silver 30
Real Estate 65

65
Kinds of Investment

30
50
r
ve
NS /Sil

75
d
ol

C)

120
G

152
ce(

148
ffi

ce
O

an

195
st

ur
Po

c
In

A/

0 50 100 150 200 250


g n
vi
Sa

No.of Respondents
Interpretation: From the above graph it can be inferred that out of 200 people,

97.5% people have invested in Saving A/c, 76% in Insurance, 74% in Fixed Deposits,

60% in Mutual Fund, 37.5% in Post Office, 25% in Shares or Debentures, 15% in

Gold/Silver and 32.5% in Real Estate.

3. Preference of factors while investing

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

No. of 40 60 64 36

Respondents

18% 20%

32% 30%

Liquidity Low Risk High Return Trust

Interpretation:
Out of 200 People, 32% People prefer to invest where there is High Return, 30% prefer

to invest where there is Low Risk, 20% prefer easy Liquidity and 18% prefer Trust

4. Awareness about Mutual Fund and its Operations

Response Yes No
No. of Respondents 135 65

33%

67%

Yes No
Interpretation:

From the above chart it is inferred that 67% People are aware of Mutual Fund and its

operations and 33% are not aware of Mutual Fund and its operations.

5. Source of information for customers about Mutual Fund

Source of information No. of Respondents


Advertisement 18
Peer Group 25
Bank 30
Financial Advisors 62

70
60
Respondents

50
No. of

40
30 62
20
25 30
10 18
0
Advertisement Peer Group Bank Financial
Advisors
Source of Information

Interpretation:

From the above chart it can be inferred that the Financial Advisor is the most

important source of information about Mutual Fund. Out of 135 Respondents, 46%

know about Mutual fund Through Financial Advisor, 22% through Bank, 19%

through Peer Group and 13% through Advertisement.


6. Investors invested in Mutual Fund

Response No. of Respondents


YES 120
NO 80
Total 200

No
40%

Yes
60%

Interpretation:

Out of 200 People, 60% have invested in Mutual Fund and 40% do not have invested

in Mutual Fund.
7. Reason for not invested in Mutual Fund

Reason No. of Respondents

Not Aware 65
Higher Risk 5
Not any Specific Reason 10

6%
13%

81%
Not Aware Higher Risk Not Any

Interpretation:

Out of 80 people, who have not invested in Mutual Fund, 81% are not aware of Mutual

Fund, 13% said there is likely to be higher risk and 6% do not have any specific reason.

8. Investors invested in different Assets Management Co. (AMC)


Name of AMC No. of Investors
SBIMF 55
UTI 75
HDFC 30
Reliance 75
ICICI Prudential 56
Kotak 45
Others 70

Others
70
HDFC
30
Name of AMC

Kotak 45
SBIMF
55
ICICI
56
Reliance
75
UTI 75

0 20 40 60 80
No. of Investors

Interpretation:

In Dehradoon most of the Investors preferred UTI and Reliance Mutual Fund. Out of

120 Investors 62.5% have invested in each of them, only 46% have invested in SBIMF,

47% in ICICI Prudential, 37.5% in Kotak and 25% in HDFC.


9. Reason for invested in SBIMF

Reason No. of Respondents


Associated with SBI 35
Better Return 5
Agents Advice 15

27%

9% 64%

Associated with SBI Better Return Agents Advice

Interpretation:

Out of 55 investors of SBIMF 64% have invested because of its association with

Brand SBI, 27% invested on Agent’s Advice, 9% invested because of better return.

10. Reason for not invested in SBIMF


Reason No. of Respondents
Not Aware 25
Less Return 18
Agent’s Advice 22

34%
38%

28%
Not Aware Less Return Agent's Advice

Interpretation:

Out of 65 people who have not invested in SBIMF, 38% were not aware with SBIMF,

28% do not have invested due to less return and 34% due to Agent’s Advice.

11. Preference of Investors for future investment in Mutual Fund

Name of AMC No. of Investors


SBIMF 76
UTI 45
HDFC 35
Reliance 82
ICICI Prudential 80
Kotak 60
Others 75

Others 75

Kotak 60
Name of AMC

ICICI Prudential 80

Reliance 82

HDFC 35

UTI 45

SBIMF 76

0 20 40 60 80 100

No. of Investors

Interpretation:

Out of 120 investors, 68% prefer to invest in Reliance, 67% in ICICI Prudential, 63%

in SBIMF, 62.5% in Others, 50% in Kotak, 37.5% in UTI and 29% in HDFC Mutual

Fund.

12. Channel Preferred by the Investors for Mutual Fund Investment

Channel Financial Advisor Bank AMC


No. of Respondents 72 18 30
25%

60%
15%

Financial Advisor Bank AMC

Interpretation:

Out of 120 Investors 60% preferred to invest through Financial Advisors, 25% through

AMC and 15% through Bank.

13. Mode of Investment Preferred by the Investors

Mode of Investment One time Investment Systematic Investment Plan (SIP)

No. of Respondents 78 42
35%

65%

One time Investment SIP

Interpretation:

Out of 120 Investors 65% preferred One time Investment and 35 % Preferred through

Systematic Investment Plan.

14. Preferred Portfolios by the Investors

Portfolio No. of Investors


Equity 56
Debt 20
Balanced 44
37%
46%

17%

Equity Debt Balance

Interpretation:

From the above graph 46% preferred Equity Portfolio, 37% preferred Balance and 17%

preferred Debt portfolio

15. Option for getting Return Preferred by the Investors

Option Dividend Payout Dividend Growth

Reinvestment
No. of Respondents 25 10 85
21%

8%

71%

Dividend Payout Dividend Reinvestment Growth

Interpretation:

From the above graph 71% preferred Growth Option, 21% preferred Dividend Payout

and 8% preferred Dividend Reinvestment Option.

16. Preference of Investors whether to invest in Sectoral Funds

Response No. of Respondents


Yes 25
No 95
21%

79%
Yes No

Interpretation:

Out of 120 investors, 79% investors do not prefer to invest in Sectoral Fund because

there is maximum risk and 21% prefer to invest in Sectoral Fund.

Chapter – 6
Findings and

Conclusion

Findings

 In Dehradoon in the Age Group of 36-40 years were more in

numbers. The second most Investors were in the age group of 41-45

years and the least were in the age group of below 30 years.

 In Dehradoon most of the Investors were Graduate or Post Graduate

and below HSC there were very few in numbers.


 In Occupation group most of the Investors were Govt. employees, the

second most Investors were Private employees and the least were

associated with Agriculture.

 In family Income group, between Rs. 20,001- 30,000 were more in

numbers, the second most were in the Income group of more than

Rs.30,000 and the least were in the group of below Rs. 10,000.

 About all the Respondents had a Saving A/c in Bank, 76% Invested

in Fixed Deposits, Only 60% Respondents invested in Mutual fund.

 Mostly Respondents preferred High Return while investment, the

second most preferred Low Risk then liquidity and the least preferred

Trust.

 Only 67% Respondents were aware about Mutual fund and its

operations and 33% were not.

 Among 200 Respondents only 60% had invested in Mutual Fund and

40% did not have invested in Mutual fund.

 Out of 80 Respondents 81% were not aware of Mutual Fund, 13%

told there is not any specific reason for not invested in Mutual Fund

and 6% told there is likely to be higher risk in Mutual Fund.


 Most of the Investors had invested in Reliance or UTI Mutual Fund,

ICICI Prudential has also good Brand Position among investors,

SBIMF places after ICICI Prudential according to the Respondents.

 Out of 55 investors of SBIMF 64% have invested due to its

association with the Brand SBI, 27% Invested because of Advisor’s

Advice and 9% due to better return.

 Most of the investors who did not invested in SBIMF due to not

Aware of SBIMF, the second most due to Agent’s advice and rest due

to Less Return.

 For Future investment the maximum Respondents preferred Reliance

Mutual Fund, the second most preferred ICICI Prudential, SBIMF

has been preferred after them.

 60% Investors preferred to Invest through Financial Advisors, 25%

through AMC (means Direct Investment) and 15% through Bank.

 65% preferred One Time Investment and 35% preferred SIP out of

both type of Mode of Investment.

 The most preferred Portfolio was Equity, the second most was

Balance (mixture of both equity and debt), and the least preferred

Portfolio was Debt portfolio.


 Maximum Number of Investors Preferred Growth Option for returns,

the second most preferred Dividend Payout and then Dividend

Reinvestment.

 Most of the Investors did not want to invest in Sectoral Fund, only

21% wanted to invest in Sectoral Fund.

Conclusion

Running a successful Mutual Fund requires complete understanding of the

peculiarities of the Indian Stock Market and also the psyche of the small

investors. This study has made an attempt to understand the financial


behavior of Mutual Fund investors in connection with the preferences of

Brand (AMC), Products, Channels etc. I observed that many of people

have fear of Mutual Fund. They think their money will not be secure in

Mutual Fund. They need the knowledge of Mutual Fund and its related

terms. Many of people do not have invested in mutual fund due to lack of

awareness although they have money to invest. As the awareness and

income is growing the number of mutual fund investors are also growing.

“Brand” plays important role for the investment. People invest in those

Companies where they have faith or they are well known with them. There

are many AMCs in Dehradoon but only some are performing well due to

Brand awareness. Some AMCs are not performing well although some of

the schemes of them are giving good return because of not awareness

about Brand. Reliance, UTI, SBIMF, ICICI Prudential etc. they are well

known Brand, they are performing well and their Assets Under

Management is larger than others whose Brand name are not well known

like Principle, Sunderam, etc.

Distribution channels are also important for the investment in mutual fund.

Financial Advisors are the most preferred channel for the investment in

mutual fund. They can change investors’ mind from one investment option
to others. Many of investors directly invest their money through AMC

because they do not have to pay entry load. Only those people invest

directly who know well about mutual fund and its operations and those

have time.
Chapter – 7

Suggestions

And

Recommendations

Suggestions and Recommendations

 The most vital problem spotted is of ignorance. Investors should be

made aware of the benefits. Nobody will invest until and unless he

is fully convinced. Investors should be made to realize that


ignorance is no longer bliss and what they are losing by not

investing.

 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.

 Mutual Fund Company needs to give the training of the Individual

Financial Advisors about the Fund/Scheme and its objective,

because they are the main source to influence the investors.

 Before making any investment Financial Advisors should first

enquire about the risk tolerance of the investors/customers, their need

and time (how long they want to invest). By considering these three

things they can take the customers into consideration.


 Younger people aged under 35 will be a key new customer group

into the future, so making greater efforts with younger customers

who show some interest in investing should pay off.

 Customers with graduate level education are easier to sell to and

there is a large untapped market there. To succeed however, advisors

must provide sound advice and high quality.

 Systematic Investment Plan (SIP) is one the innovative products

launched by Assets Management companies very recently in the

industry. SIP is easy for monthly salaried person as it provides the

facility of do the investment in EMI. Though most of the prospects

and potential investors are not aware about the SIP. There is a large

scope for the companies to tap the salaried persons.

BIBLIOGRAPHY

• NEWS PAPERS

• OUTLOOK MONEY
• TELEVISION CHANNEL (CNBC AAWAJ)

• MUTUAL FUND HAND BOOK

• FACT SHEET AND STATEMENT

• WWW.SBIMF.COM

• WWW.MONEYCONTROL.COM

• WWW.AMFIINDIA.COM

• WWW.ONLINERESEARCHONLINE.COM

• WWW. MUTUALFUNDSINDIA.COM
Mutual Funds

All About Mutual Funds


Before we understand what is mutual fund, it’s very important to know the area in which
mutual funds works, the basic understanding of stocks and bonds.
Stocks : Stocks represent shares of ownership in a public company. Examples of public companies
include Reliance, ONGC and Infosys. Stocks are considered to be the most common owned
investment traded on the market.

Bonds : Bonds are basically the money which you lend to the government or a company, and in
return you can receive interest on your invested amount, which is back over predetermined amounts
of time. Bonds are considered to be the most common lending investment traded on the market. There
are many other types of investments other than stocks and bonds (including annuities, real estate, and
precious metals), but the majority of mutual funds invest in stocks and/or bonds.

What Is Mutual Fund

A mutual fund is just the connecting bridge or a financial intermediary that allows a group of
investors to pool their money together with a predetermined investment objective. The mutual fund
will have a fund manager who is responsible for investing the gathered money into specific securities
(stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual
fund and thus on investing becomes a shareholder or unit holder of the fund.

Mutual funds are considered as one of the best available investments as compare to others they
are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund,
investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on
their own. But the biggest advantage to mutual funds is diversification, by minimizing risk &
maximizing returns.

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

Unit Trust of India is the first Mutual Fund set up under a separate act,
UTI Act in 1963, and started its operations in 1964 with the issue of
units under the scheme US-64.
Overview of existing schemes existed in mutual fund category
Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position,
risk tolerance and return expectations etc. The table below gives an overview into the existing types of
schemes in the Industry.

Type of Mutual Fund Schemes

BY STRUCTURE

Open Ended Schemes


An open-end fund is one that is available for subscription all through the year. These do not
have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV")
related prices. The key feature of open-end schemes is liquidity.

Close Ended Schemes


A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years.
The fund is open for subscription only during a specified period. Investors can invest in the scheme at
the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the
stock exchanges where they are listed. In order to provide an exit route to the investors, some close-
ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase
at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to
the investor.

Interval Schemes
Interval Schemes are that scheme, which combines the features of open-ended and close-ended
schemes. The units may be traded on the stock exchange or may be open for sale or redemption
during pre-determined intervals at NAV related prices.

BY NATURE

1. Equity fund:
These funds invest a maximum part of their corpus into equities holdings. The structure of the
fund may vary different for different schemes and the fund manager’s outlook on different stocks. The
Equity Funds are sub-classified depending upon their investment objective, as follows:

• Diversified Equity Funds


• Mid-Cap Funds
• Sector Specific Funds
• Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-
return matrix.

2. Debt funds:

The objective of these Funds is to invest in debt papers. Government authorities, private companies,
banks and financial institutions are some of the major issuers of debt papers. By investing in debt
instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are
further classified as:

• Gilt Funds: Invest their corpus in securities issued by Government, popularly known as
Government of India debt papers. These Funds carry zero Default risk but are associated with
Interest Rate risk. These schemes are safer as they invest in papers backed by Government.

• Income Funds: Invest a major portion into various debt instruments such as bonds, corporate
debentures and Government securities.

• MIPs: Invests maximum of their total corpus in debt instruments while they take minimum
exposure in equities. It gets benefit of both equity and debt market. These scheme ranks
slightly high on the risk-return matrix when compared with other debt schemes.

• Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds
primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial
Papers (CPs). Some portion of the corpus is also invested in corporate debentures.

• Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity
and preservation of capital. These schemes invest in short-term instruments like Treasury
Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash
management of corporate houses and are meant for an investment horizon of 1day to 3
months. These schemes rank low on risk-return matrix and are considered to be the safest
amongst all categories of mutual funds.

3. Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They invest in
both equities and fixed income securities, which are in line with pre-defined investment objective of
the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part
provide growth and the debt part provides stability in returns.

Further the mutual funds can be broadly classified on the basis of investment parameter viz,
Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives
of the fund. The investor can align his own investment needs with the funds objective and invest
accordingly.

BY INVESTMENT OBJECTIVE
• Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these
schemes is to provide capital appreciation over medium to long term. These schemes normally
invest a major part of their fund in equities and are willing to bear short-term decline in value
for possible future appreciation.

• Income Schemes: Income Schemes are also known as debt schemes. The aim of these
schemes is to provide regular and steady income to investors. These schemes generally invest
in fixed income securities such as bonds and corporate debentures. Capital appreciation in
such schemes may be limited.

• Balanced Schemes: Balanced Schemes aim to provide both growth and income by
periodically distributing a part of the income and capital gains they earn. These schemes invest
in both shares and fixed income securities, in the proportion indicated in their offer documents
(normally 50:50).

• Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation
of capital and moderate income. These schemes generally invest in safer, short-term
instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank
call money.

OTHER SCHEMES

• Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws
prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any
Equity Linked Savings Scheme (ELSS) are eligible for rebate.
• Index Schemes: Index schemes attempt to replicate the performance of a particular index such
as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those
stocks that constitute the index. The percentage of each stock to the total holding will be
identical to the stocks index weightage. And hence, the returns from such schemes would be
more or less equivalent to those of the Index.
• Sector Specific Schemes: These are the funds/schemes which invest in the securities of only
those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software,
Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are
dependent on the performance of the respective sectors/industries. While these funds may give
higher returns, they are more risky compared to diversified funds. Investors need to keep a
watch on the performance of those sectors/industries and must exit at an appropriate time.

Types of returns

There are three ways, where the total returns provided by mutual funds can be enjoyed by investors:

• Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all
income it receives over the year to fund owners in the form of a distribution.
• If the fund sells securities that have increased in price, the fund has a capital gain. Most funds
also pass on these gains to investors in a distribution.
• If fund holdings increase in price but are not sold by the fund manager, the fund's shares
increase in price. You can then sell your mutual fund shares for a profit. Funds will also
usually give you a choice either to receive a check for distributions or to reinvest the earnings
and get more shares.

Pros & cons of investing in mutual funds:


For investments in mutual fund, one must keep in mind about the Pros and cons of
investments in mutual fund.

Advantages of Investing Mutual Funds:

1. Professional Management - The basic advantage of funds is that, they are professional managed,
by well qualified professional. Investors purchase funds because they do not have the time or the
expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive
way to make and monitor their investments.

2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds,
the investors risk is spread out and minimized up to certain extent. The idea behind diversification is
to invest in a large number of assets so that a loss in any particular investment is minimized by gains
in others.

3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to
reducing transaction costs, and help to bring down the average cost of the unit for their investors.

4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their
holdings as and when they want.

5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available


instruments in the market, and the minimum investment is small. Most AMC also have automatic
purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.
Disadvantages of Investing Mutual Funds:

1. Professional Management- Some funds doesn’t perform in neither the market, as their
management is not dynamic enough to explore the available opportunity in the market, thus many
investors debate over whether or not the so-called professionals are any better than mutual fund or
investor himself, for picking up stocks.

2. Costs – The biggest source of AMC income, is generally from the entry & exit load which they
charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra
cost under layers of jargon.

3. Dilution - Because funds have small holdings across different companies, high returns from a few
investments often don't make much difference on the overall return. Dilution is also the result of a
successful fund getting too big. When money pours into funds that have had strong success, the
manager often has trouble finding a good investment for all the new money.

4. Taxes - when making decisions about your money, fund managers don't consider your personal tax
situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which
affects how profitable the individual is from the sale. It might have been more advantageous for the
individual to defer the capital gains liability.
Mutual Funds Industry in India
The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by
UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-
UTI players entered the industry.

In the past decade, Indian mutual fund industry had seen a dramatic improvements, both quality wise
as well as quantity wise. Before, the monopoly of the market had seen an ending phase, the Assets
Under Management (AUM) was Rs. 67bn. The private sector entry to the fund family rose the AUM
to Rs. 470 in in March 1993 and till April 2004, it reached the height of 1,540 bn.

Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the
deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking
industry.

The main reason of its poor growth is that the mutual fund industry in India is new in the country.
Large sections of Indian investors are yet to be intellectuated with the concept. Hence, it is the prime
responsibility of all mutual fund companies, to market the product correctly abreast of selling.

The mutual fund industry can be broadly put into four phases according to the development of the
sector. Each phase is briefly described as under.
The major players in the Indian Mutual Fund Industry are:

Major Players of Mutual Funds In India

Period (Last&nbsp1 Week)

Rank Scheme Name Date NAV Last 1 Since


(Rs.) Week Inception
1 JM Core 11 Fund - Series 1 - Mar 26 8.45 5.12 -94.64
Growth , 2008
2 Tata Indo-Global Infrastructure Mar 26 8.26 5.05 -40.42
Fund - Growth , 2008
3 Tata Capital Builder Fund - Mar 26 12.44 5.03 15.35
Growth , 2008
4 Standard Chartered Enterprise Mar 26 14.07 5 20.92
Equity Fund - Growth , 2008
5 DBS Chola Infrastructure Fund - Mar 26 9.01 4.65 -17.17
Growth , 2008
6 ICICI Prudential Fusion Fund - Mar 26 10.2 4.62 23.69
Series III - Institutional - , 2008
Growth
7 DSP Merrill Lynch Micro Cap Mar 26 9.93 4.56 -0.85
Fund - Regular - Growth , 2008
8 ICICI Prudential Fusion Fund - Mar 26 10.19 4.51 22.39
Series III - Retail - Growth , 2008
9 DBS Chola Small Cap Fund - Mar 26 6.36 3.75 -81.78
Growth , 2008
10 Principal Personal Taxsaver Mar 25 124.66 3.44 29.97
, 2008
11 Benchmark Split Capital Fund - Mar 26 141.51 3.14 13.71
Plan A - Preferred Units , 2008
12 ICICI Prudential FMP - Series Mar 26 9.89 2.91 -7.88
33 - Plan A - Growth , 2008
13 Tata SIP Fund - Series I - Mar 26 10.25 2.38 2.39
Growth , 2008
14 Sahara R.E.A.L Fund - Growth Mar 25 7.64 1.86 -49.52
, 2008
15 Tata SIP Fund - Series II - Mar 26 9.93 1.58 -0.94
Growth , 2008
A mutual fund is a professionally-managed firm of collective investments that pools money from
many investors and invests it in stocks, bonds, short-term money market instruments, and/or other
securities.in other words we can say that A Mutual Fund is a trust registered with the Securities and
Exchange Board of India (SEBI), which pools up the money from individual / corporate investors and
invests the same on behalf of the investors /unit holders, in equity shares, Government securities,
Bonds, Call money markets etc., and distributes the profits.
The value of each unit of the mutual fund, known as the net asset value (NAV), is mostly calculated
daily based on the total value of the fund divided by the number of shares currently issued and
outstanding. The value of all the securities in the portfolio in calculated daily. From this, all expenses
are deducted and the resultant value divided by the number of units in the fund is the fund’s NAV.

NAV = Total value of the fund……………….


No. of shares currently issued and outstanding

Advantages of a MF
– Mutual Funds provide the benefit of cheap access to expensive stocks

– Mutual funds diversify the risk of the investor by investing in a basket of assets

– A team of professional fund managers manages them with in-depth research inputs
from investment analysts.

– Being institutions with good bargaining power in markets, mutual funds have access to
crucial corporate information, which individual investors cannot access.
History of the Indian mutual fund industry:
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. The history of mutual funds in India can be
broadly divided into four distinct phases.

First Phase – 1964-87


Unit Trust of India (UTI) was established on 1963 by an Act of Parliament 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 the Industrial 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 Canbank Mutual Fund
(Dec 87), 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)


1993 was the year in which the first Mutual Fund Regulations came into being, under which all
mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now
merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.
The 1993 SEBI (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. As at the end of January 2003, there were 33 mutual funds with total assets of Rs.
1,21,805 crores.
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 of India 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 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. consolidation and growth. As at the end of
September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.
Categories of mutual funds:
Mutual funds can be classified as follow:

 Based on their structure:

• Open-ended funds: Investors can buy and sell the units from the fund, at any point of time.

• Close-ended funds: These funds raise money from investors only once. Therefore, after the
offer period, fresh investments can not be made into the fund. If the fund is listed on a stocks
exchange the units can be traded like stocks (E.g., Morgan Stanley Growth Fund). Recently,
most of the New Fund Offers of close-ended funds provided liquidity window on a periodic
basis such as monthly or weekly. Redemption of units can be made during specified intervals.
Therefore, such funds have relatively low liquidity.

 Based on their investment objective:

Equity funds: These funds invest in equities and equity related instruments. With fluctuating share
prices, such funds show volatile performance, even losses. However, short term fluctuations in the
market, generally smoothens out in the long term, thereby offering higher returns at relatively lower
volatility. At the same time, such funds can yield great capital appreciation as, historically, equities
have outperformed all asset classes in the long term. Hence, investment in equity funds should be
considered for a period of at least 3-5 years. It can be further classified as:

i) Index funds- In this case a key stock market index, like BSE Sensex or Nifty is tracked. Their
portfolio mirrors the benchmark index both in terms of composition and individual stock
weightages.

ii) Equity diversified funds- 100% of the capital is invested in equities spreading across different
sectors and stocks.

iii) Dividend yield funds- it is similar to the equity diversified funds except that they invest in
companies offering high dividend yields.

iv) Thematic funds- Invest 100% of the assets in sectors which are related through some theme.
e.g. -An infrastructure fund invests in power, construction, cements sectors etc.

v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A banking sector fund will invest
in banking stocks.

vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors.
Balanced fund: Their investment portfolio includes both debt and equity. As a result, on the risk-return
ladder, they fall between equity and debt funds. Balanced funds are the ideal mutual funds vehicle for investors
who prefer spreading their risk across various instruments. Following are balanced funds classes:

i) Debt-oriented funds -Investment below 65% in equities.

ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.

Debt fund: They invest only in debt instruments, and are a good option for investors averse to idea of
taking risk associated with equities. Therefore, they invest exclusively in fixed-income instruments
like bonds, debentures, Government of India securities; and money market instruments such as
certificates of deposit (CD), commercial paper (CP) and call money. Put your money into any of these
debt funds depending on your investment horizon and needs.

i) Liquid funds- These funds invest 100% in money market instruments, a large portion being invested
in call money market.

ii)Gilt funds ST- They invest 100% of their portfolio in government securities of and T-bills.

iii)Floating rate funds - Invest in short-term debt papers. Floaters invest in debt instruments which
have variable coupon rate.

iv)Arbitrage fund- They generate income through arbitrage opportunities due to mis-pricing between
cash market and derivatives market. Funds are allocated to equities, derivatives and money markets.
Higher proportion (around 75%) is put in money markets, in the absence of arbitrage opportunities.

v)Gilt funds LT- They invest 100% of their portfolio in long-term government securities.

vi) Income funds LT- Typically, such funds invest a major portion of the portfolio in long-term debt
papers.

vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and an exposure of 10%-
30% to equities.

viii)FMPs- fixed monthly plans invest in debt papers whose maturity is in line with that of the fund.
Investment strategies:

1. Systematic Investment Plan: under this a fixed sum is invested each month on a fixed date of a
month. Payment is made through post dated cheques or direct debit facilities. The investor gets fewer
units when the NAV is high and more units when the NAV is low. This is called as the benefit of
Rupee Cost Averaging (RCA)

2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and give
instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund.

3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he can
withdraw a fixed amount each month.

Risk v/s. return:


Working of a Mutual fund:
The entire mutual fund industry operates in a very organized way. The investors, known as unit
holders,handover their savings to the AMCs under various schemes. The objective of the investment
should match with the objective of the fund to best suit the investors’ needs. The AMCs further invest
the funds into various securities according to the investment objective. The return generated from the
investments is passed on to the investors or reinvested as mentioned in the offer document.
Working
Of
Mutual Fund

Mutual Funds
Before we understand what is mutual fund, it’s very important to know the area in which
mutual funds works, the basic understanding of stocks and bonds.

Stocks : Stocks represent shares of ownership in a public company. Examples of public companies
include Reliance, ONGC and Infosys. Stocks are considered to be the most common owned
investment traded on the market.

Bonds : Bonds are basically the money which you lend to the government or a company, and in
return you can receive interest on your invested amount, which is back over predetermined amounts
of time. Bonds are considered to be the most common lending investment traded on the market. There
are many other types of investments other than stocks and bonds (including annuities, real estate, and
precious metals), but the majority of mutual funds invest in stocks and/or bonds.

What Is Mutual Fund

A mutual fund is just the connecting bridge or a financial intermediary that allows a group of
investors to pool their money together with a predetermined investment objective. The mutual fund
will have a fund manager who is responsible for investing the gathered money into specific securities
(stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual
fund and thus on investing becomes a shareholder or unit holder of the fund.

Mutual funds are considered as one of the best available investments as compare to others they
are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund,
investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on
their own. But the biggest advantage to mutual funds is diversification, by minimizing risk &
maximizing returns.

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
Overview of existing schemes existed in mutual fund category
Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position,
risk tolerance and return expectations etc. The table below gives an overview into the existing types of
schemes in the Industry.
Type of Mutual Fund Schemes

BY STRUCTURE

Open Ended Schemes


An open-end fund is one that is available for subscription all through the year. These do not have a
fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related
prices. The key feature of open-end schemes is liquidity.

Close Ended Schemes


A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years.
The fund is open for subscription only during a specified period. Investors can invest in the scheme at
the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the
stock exchanges where they are listed. In order to provide an exit route to the investors, some close-
ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase
at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to
the investor.

Interval Schemes

Interval Schemes are that scheme, which combines the features of open-ended and close-ended
schemes. The units may be traded on the stock exchange or may be open for sale or redemption
during pre-determined intervals at NAV related prices.
BY NATURE

Under this the mutual fund is categorized on the basis of Investment Objective. By nature the mutual
fund is categorized as follow:

1. Equity fund:
These funds invest a maximum part of their corpus into equities holdings. The structure of the
fund may vary different for different schemes and the fund manager’s outlook on different stocks. The
Equity Funds are sub-classified depending upon their investment objective, as follows:

• Diversified Equity Funds


• Mid-Cap Funds
• Sector Specific Funds
• Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-
return matrix.

2. Debt funds:

The objective of these Funds is to invest in debt papers. Government authorities, private companies,
banks and financial institutions are some of the major issuers of debt papers. By investing in debt
instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are
further classified as:

• Gilt Funds: Invest their corpus in securities issued by Government, popularly known as
Government of India debt papers. These Funds carry zero Default risk but are associated with
Interest Rate risk. These schemes are safer as they invest in papers backed by Government.

• Income Funds: Invest a major portion into various debt instruments such as bonds, corporate
debentures and Government securities.

• MIPs: Invests maximum of their total corpus in debt instruments while they take minimum
exposure in equities. It gets benefit of both equity and debt market. These scheme ranks
slightly high on the risk-return matrix when compared with other debt schemes.

• Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds
primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial
Papers (CPs). Some portion of the corpus is also invested in corporate debentures.
• Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity
and preservation of capital. These schemes invest in short-term instruments like Treasury
Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash
management of corporate houses and are meant for an investment horizon of 1day to 3
months. These schemes rank low on risk-return matrix and are considered to be the safest
amongst all categories of mutual funds.

3. Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They invest
in both equities and fixed income securities, which are in line with pre-defined investment objective
of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part
provides growth and the debt part provides stability in returns.

Further the mutual funds can be broadly classified on the basis of investment parameter viz,
Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives
of the fund. The investor can align his own investment needs with the funds objective and invest
accordingly.
BY INVESTMENT OBJECTIVE

• Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these
schemes is to provide capital appreciation over medium to long term. These schemes normally
invest a major part of their fund in equities and are willing to bear short-term decline in value
for possible future appreciation.

• Income Schemes: Income Schemes are also known as debt schemes. The aim of these
schemes is to provide regular and steady income to investors. These schemes generally invest
in fixed income securities such as bonds and corporate debentures. Capital appreciation in
such schemes may be limited.

• Balanced Schemes: Balanced Schemes aim to provide both growth and income by
periodically distributing a part of the income and capital gains they earn. These schemes invest
in both shares and fixed income securities, in the proportion indicated in their offer documents
(normally 50:50).

• Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation
of capital and moderate income. These schemes generally invest in safer, short-term
instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank
call money.

OTHER SCHEMES

• Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws
prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any
Equity Linked Savings Scheme (ELSS) are eligible for rebate.
• Index Schemes: Index schemes attempt to replicate the performance of a particular index such
as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those
stocks that constitute the index. The percentage of each stock to the total holding will be
identical to the stocks index weightage. And hence, the returns from such schemes would be
more or less equivalent to those of the Index.
• Sector Specific Schemes: These are the funds/schemes which invest in the securities of only
those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software,
Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are
dependent on the performance of the respective sectors/industries. While these funds may give
higher returns, they are more risky compared to diversified funds. Investors need to keep a
watch on the performance of those sectors/industries and must exit at an appropriate time.

Types of returns:

There are three ways, where the total returns provided by mutual funds can be enjoyed by investors:
• Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all
income it receives over the year to fund owners in the form of a distribution.
• If the fund sells securities that have increased in price, the fund has a capital gain. Most funds
also pass on these gains to investors in a distribution.
• If fund holdings increase in price but are not sold by the fund manager, the fund's shares
increase in price. You can then sell your mutual fund shares for a profit. Funds will also
usually give you a choice either to receive a check for distributions or to reinvest the earnings
and get more shares.
Pros & cons of investing in mutual funds:

For investments in mutual fund, one must keep in mind about the Pros and cons of
investments in mutual fund.

Advantages of Investing Mutual Funds:

1. Professional Management - The basic advantage of funds is that, they are professional managed,
by well qualified professional. Investors purchase funds because they do not have the time or the
expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive
way to make and monitor their investments.

2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds,
the investors risk is spread out and minimized up to certain extent. The idea behind diversification is
to invest in a large number of assets so that a loss in any particular investment is minimized by gains
in others.

3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to
reducing transaction costs, and help to bring down the average cost of the unit for their investors.

4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their
holdings as and when they want.

5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available


instruments in the market, and the minimum investment is small. Most AMC also have automatic
purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.
Disadvantages of Investing Mutual Funds:

1. Professional Management- Some funds doesn’t perform in neither the market, as their
management is not dynamic enough to explore the available opportunity in the market, thus many
investors debate over whether or not the so-called professionals are any better than mutual fund or
investor himself, for picking up stocks.

2. Costs – The biggest source of AMC income, is generally from the entry & exit load which they
charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra
cost under layers of jargon.

3. Dilution - Because funds have small holdings across different companies, high returns from a few
investments often don't make much difference on the overall return. Dilution is also the result of a
successful fund getting too big. When money pours into funds that have had strong success, the
manager often has trouble finding a good investment for all the new money.

4. Taxes - when making decisions about your money, fund managers don't consider your personal tax
situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which
affects how profitable the individual is from the sale. It might have been more advantageous for the
individual to defer the capital gains liability.
Guidelines of the SEBI for Mutual Fund Companies :

To protect the interest of the investors, SEBI formulates policies and regulates the mutual
funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to
time.

SEBI approved Asset Management Company (AMC) manages the funds by making
investments in various types of securities. Custodian, registered with SEBI, holds the securities
of various schemes of the fund in its custody.
According to SEBI Regulations, two thirds of the directors of Trustee Company or board of
trustees must be independent.
The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual
funds that the mutual funds function within the strict regulatory framework. Its objective is to
increase public awareness of the mutual fund industry. AMFI also is engaged in upgrading
professional standards and in promoting best industry practices in diverse areas such as
valuation, disclosure, transparency etc.

Documents required (PAN mandatory):

Proof of identity :

1. Photo PAN card

2. In case of non-photo PAN card in addition to copy of PAN card any one of the following:
driving license/passport copy/ voter id/ bank photo pass book.
Proof of address (any of the following ) :latest telephone bill, latest electricity bill, Passport,
latest bank passbook/bank account statement, latest Demat account statement, voter id, driving
license, ration card, rent agreement.
Offer document: An offer document is issued when the AMCs make New Fund Offer(NFO).
Its advisable to every investor to ask for the offer document and read it before investing. An
offer document consists of the following:
Standard Offer Document for Mutual Funds (SEBI Format)
 Summary Information
 Glossary of Defined Terms
 Risk Disclosures
 Legal and Regulatory Compliance
 Expenses
 Condensed Financial Information of Schemes
 Constitution of the Mutual Fund
 Investment Objectives and Policies
 Management of the Fund
 Offer Related Information.

Key Information Memorandum: a key information memorandum, popularly known as KIM,


is attached along with the mutual fund form. And thus every investor get to read it. Its contents
are:
1 Name of the fund.
2. Iestment objective
3. Aset allocation pattern of the scheme.
4. Risk profile of the scheme
5. Plans & options
6. Minimum application amount/ no. of units
7. Benchmark index
8. Dividend policy
9. Name of the fund manager(s)
10 . Expenses of the scheme: load structure, recurring expenses
11. Performance of the scheme (scheme return v/s. benchmark return)
12. Year- wise return for the last 5 financial year.
Distribution channels:

Mutual funds posses a very strong distribution channel so that the ultimate customers doesn’t
face any difficulty in the final procurement. The various parties involved in distribution of
mutual funds are:

1. Direct marketing by the AMCs: the forms could be obtained from the AMCs directly. The
investors can approach to the AMCs for the forms. some of the top AMCs of India are;
Reliance ,Birla Sunlife, Tata, SBI magnum, Kotak Mahindra, HDFC, Sundaram, ICICI, Mirae
Assets, Canara Robeco, Lotus India, LIC, UTI etc. whereas foreign AMCs include: Standard
Chartered, Franklin Templeton, Fidelity, JP Morgan, HSBC, DSP Merill Lynch, etc.

2 .Broker/ sub broker arrangements: the AMCs can simultaneously go for broker/sub-broker to
popularize their funds. AMCs can enjoy the advantage of large network of these brokers and
sub brokers.eg: SBI being the top financial intermediary of India has the greatest network. So
the AMCs dealing through SBI has access to most of the investors.

3. Individual agents, Banks, NBFC: investors can procure the funds through individual agents,
independent brokers, banks and several non- banking financial corporations too, whichever he
finds convenient for him.

Costs associated:

Expenses:
AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries,
advertising expenses, brokerage fee, etc. A 1.5% expense ratio means the AMC charges Rs1.50
for every Rs100 in assets under management. A fund's expense ratio is typically to the size of
the funds under management and not to the returns earned. Normally, the costs of running a
fund grow slower than the growth in the fund size - so, the more assets in the fund, the lower
should be its expense ratio
Loads:

Entry Load/Front-End Load (0-2.25%)- its the commission charged at the time of buying
the fund to cover the cost of selling, processing etc.

Exit Load/Back- End Load (0.25-2.25%)- it is the commission or charged paid when an
investor exits from a mutual fund, it is imposed to discourage withdrawals. It may reduce to
zero with increase in holding period.

Measuring and evaluating mutual funds performance:

Every investor investing in the mutual funds is driven by the motto of either wealth creation or
wealth increment or both. Therefore it’s very necessary to continuously evaluate the funds’
performance with the help of factsheets and newsletters, websites, newspapers and
professional advisors like SBI mutual fund services. If the investors ignore the evaluation of
funds’ performance then he can loose hold of it any time. In this ever-changing industry, he can
face any of the following problems:

1. Variation in the funds’ performance due to change in its management/ objective.


2. The funds’ performance can slip in comparison to similar funds.
3. There may be an increase in the various costs associated with the fund.
4 .Beta, a technical measure of the risk associated may also surge.
5. The funds’ ratings may go down in the various lists published by independent rating
agencies.
6 .It can merge into another fund or could be acquired by another fund house.
Performance measures:

Equity funds: the performance of equity funds can be measured on the basis of: NAV
Growth, Total Return; Total Return with Reinvestment at NAV, Annualized Returns and
Distributions, Computing Total Return (Per Share Income and Expenses, Per Share Capital
Changes, Ratios, Shares Outstanding), the Expense Ratio, Portfolio Turnover Rate, Fund Size,
Transaction Costs, Cash Flow, Leverage.

Debt fund: likewise the performance of debt funds can be measured on the basis of: Peer
Group Comparisons, The Income Ratio, Industry Exposures and Concentrations, NPAs,
besides NAV Growth, Total Return and Expense Ratio.

Liquid funds: the performance of the highly volatile liquid funds can be measured on the
basis of: Fund Yield, besides NAV Growth, Total Return and Expense Ratio.

Concept of benchmarking for performance evaluation:

Every fund sets its benchmark according to its investment objective. The funds performance is
measured in comparison with the benchmark. If the fund generates a greater return than the
benchmark then it is said that the fund has outperformed benchmark , if it is equal to
benchmark then the correlation between them is exactly 1. And if in case the return is lower
than the benchmark then the fund is said to be underperformed.

Some of the benchmarks are :


1. Equity funds: market indices such as S&P CNX nifty, BSE100, BSE200, BSE-PSU, BSE
500 index, BSE bankex, and other sectoral indices.
2. Debt funds: Interest Rates on Alternative Investments as Benchmarks, I-Bex Total Return
Index, JPM T-Bill Index Post-Tax Returns on Bank Deposits versus Debt Funds.
3. Liquid funds: Short Term Government Instruments’ Interest Rates as Benchmarks, JPM T-
Bill Index
To measure the fund’s performance, the comparisons are usually done with:
I)with a market index.
ii) Funds from the same peer group.
iii) Other similar products in which investors invest their funds.

Financial planning for investors( ref. to mutual funds):

Investors are required to go for financial planning before making investments in any mutual
fund. The objective of financial planning is to ensure that the right amount of money is
available at the right time to the investor to be able to meet his financial goals. It is more than
mere tax planning. Steps in financial planning are:

Asset allocation.
Selection of fund.
Studying the features of a scheme.

In case of mutual funds, financial planning is concerned only with broad asset allocation,
leaving the actual allocation of securities and their management to fund managers. A fund
manager has to closely follow the objectives stated in the offer document, because financial
plans of users are chosen using these objectives.
Why has it become one of the largest financial instruments?

If we take a look at the recent scenario in the Indian financial market then we can find the
market flooded with a variety of investment options which includes mutual funds, equities,
fixed income bonds, corporate debentures, company fixed deposits, bank deposits, PPF, life
insurance, gold, real estate etc. all these investment options could be judged on the basis of
various parameters such as- return, safety convenience, volatility and liquidity. measuring
these investment options on the basis of the mentioned parameters, we get this in a tabular
form
Return Safety Volatility Liquidity Convenienc
e
Equity High Low High High Moderate

Bonds Moderate High Moderate Moderate High

Co. Moderate Moderate Moderate Low Low


Debentures
Co. FDs Moderate Low Low Low Moderate

Bank Low High Low High High


Deposits
PPF Moderate High Low Moderate High

Life Low High Low Low Moderate


Insurance
Gold Moderate High Moderate Moderate Gold

Real Estate High Moderate High Low Low

Mutual High High Moderate High High


Funds

We can very well see that mutual funds outperform every other investment option. On three
parameters it scores high whereas it’s moderate at one. comparing it with the other options, we
find that equities gives us high returns with high liquidity but its volatility too is high with low
safety which doesn’t makes it favourite among persons who have low risk- appetite. Even the
convenience involved with investing in equities is just moderate.

Now looking at bank deposits, it scores better than equities at all


fronts but lags badly in the parameter of utmost important ie; it scores low on return , so it’s
not an happening option for person who can afford to take risks for higher return. The other
option offering high return is real estate but that even comes with high volatility and moderate
safety level, even the liquidity and convenience involved are too low. Gold have always been a
favourite among Indians but when we look at it as an investment option then it definitely
doesn’t gives a very bright picture. Although it ensures high safety but the returns generated
and liquidity are moderate. Similarly the other investment options are not at par with mutual
funds and serve the needs of only a specific customer group. Straightforward, we can say that
mutual fund emerges as a clear winner among all the options available.
The reasons for this being:

I)Mutual funds combine the advantage of each of the investment products: mutual fund is
one such option which can invest in all other investment options. Its principle of diversification
allows the investors to taste all the fruits in one plate. just by investing in it, the investor can
enjoy the best investment option as per the investment objective.

II)dispense the shortcomings of the other options: every other investment option has more
or les some shortcomings. Such as if some are good at return then they are not safe, if some are
safe then either they have low liquidity or low safety or both….likewise, there exists no single
option which can fit to the need of everybody. But mutual funds have definitely sorted out this
problem. Now everybody can choose their fund according to their investment objectives.

III) Returns get adjusted for the market movements: as the mutual funds are managed by
experts so they are ready to switch to the profitable option along with the market movement.
Suppose they predict that market is going to fall then they can sell some of their shares and
book profit and can reinvest the amount again in money market instruments.
IV) Flexibility of invested amount: Other then the above mentioned reasons, there exists one
more reason which has established mutual funds as one of the largest financial intermediary
and that is the flexibility that mutual funds offer regarding the investment amount. One can
start investing in mutual funds with amount as low as Rs. 500 through SIPs and even Rs. 100
in some cases.

How do investors choose between funds?

When the market is flooded with mutual funds, it’s a very tough job for the investors to choose
the best fund for them. Whenever an investor thinks of investing in mutual funds, he must look
at the investment objective of the fund. Then the investors sort out the funds whose investment
objective matches with that of the investor’s. Now the tough task for investors start, they may
carry on the further process themselves or can go for advisors like SBI . Of course the
investors can save their money by going the direct route i.e. through the AMCs directly but it
will only save 1-2.25% (entry load) but could cost the investors in terms of returns if the
investor is not an expert. So it is always advisable to go for MF advisors. The mf advisors’
thoughts go beyond just investment objectives and rate of return. Some of the basic tools
which an investor may ignore but an mf advisor will always look for are as follow:

1. Rupee cost averaging:

The investors going for Systematic Investment Plans(SIP) and Systematic Transfer Plans(STP)
may enjoy the benefits of RCA (Rupee Cost Averaging). Rupee cost averaging allows an
investor to bring down the average cost of buying a scheme by making a fixed investment
periodically, like Rs 5,000 a month and nowadays even as low as Rs. 500 or Rs. 100. In this
case, the investor is always at a profit, even if the market falls. In case if the NAV of fund falls,
the investors can get more number of units and vice-versa. This results in the average cost per
unit for the investor being lower than the average price per unit over time.
The investor needs to decide on the investment amount and the frequency. More frequent the
investment interval, greater the chances of benefiting from lower prices. Investors can also
benefit by increasing the SIP amount during market downturns, which will result in reducing
the average cost and enhancing returns. Whereas STP allows investors who have lump sums to
park the funds in a low-risk fund like liquid funds and make periodic transfers to another fund
to take advantage of rupee cost averaging.

2. Rebalancing:

Rebalancing involves booking profit in the fund class that has gone up and investing in the
asset class that is down. Trigger and switching are tools that can be used to rebalance a
portfolio. Trigger facilities allow automatic redemption or switch if a specified event occurs.
The trigger could be the value of the investment, the net asset value of the scheme, level of
capital appreciation, level of the market indices or even a date. The funds redeemed can be
switched to other specified schemes within the same fund house. Some fund houses allow such
switches without charging an entry load.
To use the trigger and switch facility, the investor needs to specify the event, the amount or the
number of units to be redeemed and the scheme into which the switch has to be made. This
ensures that the investor books some profits and maintains the asset allocation in the portfolio.

3. Diversification:

Diversification involves investing the amount into different options. In case of mutual funds,
the investor may enjoy it afterwards also through dividend transfer option. Under this, the
dividend is reinvested not into the same scheme but into another scheme of the investor's
choice.
For example, the dividends from debt funds may be transferred to equity schemes. This gives
the investor a small exposure to a new asset class without risk to the principal amount. Such
transfers may be done with or without entry loads, depending on the MF's policy.

4. Tax efficiency:

Tax factor acts as the “x-factor” for mutual funds. Tax efficiency affects the final decision of
any investor before investing. The investors gain through either dividends or capital
appreciation but if they haven’t considered the tax factor then they may end loosing.
Debt funds have to pay a dividend distribution tax of 12.50 per cent (plus surcharge and
education cess) on dividends paid out. Investors who need a regular stream of income have to
choose between the dividend option and a systematic withdrawal plan that allows them to
redeem units periodically. SWP implies capital gains for the investor.
If it is short-term, then the SWP is suitable only for investors in the 10-per-cent-tax bracket.
Investors in higher tax brackets will end up paying a higher rate as short-term capital gains and
should choose the dividend option.

If the capital gain is long-term (where the investment has been held for more than one year),
the growth option is more tax efficient for all investors. This is because investors can redeem
units using the SWP where they will have to pay 10 per cent as long-term capital gains tax
against the 12.50 per cent DDT paid by the MF on dividends.
All the tools discussed over here are used by all the advisors and have helped investors in
reducing risk, simplicity and affordability. Even then an investor needs to examine costs, tax
implications and minimum applicable investment amounts before committing to a service.

Most popular stocks among fund managers (as on 30th April 2008)
Company Name no. of funds
Reliance industries limited 244
Larsen & toubro limited 206
ICICI bank limited 202
State bank of India 188
Bharti airtel limited 184
Bharat heavy electricals
limited 200
Reliance communication
ventures ltd 169
Infosys technologies ltd 159
Oil& Natural gas corporation
ltd. 153
ITC ltd. 143

We can easily point out that reliance industries limited emerges as a true winner over here
attracting the attention of almost244 managers well followed by Larsen & toubro ltd ICICI
bank ltd and Bharat heavy electricals ltd. The other companies succeeding in getting a place at
top 10 are SBI, Bharti airtel limited, reliance communications, Infosys technologies limited,
ONGC and at last ITC ltd.

What are the most lucrative sectors for mutual fund managers?

This is a question of utmost interest for all the investors even for those who don’t invest in
mutual funds. Because the investments done by the MFs acts as trendsetters. The investments
made by the fund managers are used for prediction. Huge investments assure liquidity and
reflects appositive picture whereas tight investment policy reflects crunch and investors may
look forward for a gloomy picture.
Their investments show that which sector is hot? And will set the market trends. The expert
management of the funds will always look for profitable and high paying sectors. So we can
have a look at most lucrative sectors to know about the recent trends:
Sector name No. of MFs betting
on it
automotive 255
banking & financial 196
services
cement & 237
construction
consumer durables 51
conglomerates 218
chemicals 259
consumer non 146
durables
engineering & 317
capital goods
food & beverages 175
information 284
technology
media & 218
entertainment
Manufacturing 259
metals& mining 275
Miscellaneous 250
oil & gas 290
Pharmaceuticals 250
Services 200
Telecom 264
Tobacco 150
Utility 225
From the above data collected we can say that engineering & capital goods sector has emerged
as the hottest as most of the funds are betting on it. We can say that this sector is on boom and
presents a bright picture. Other than it other sectors on height are oil & gas, telecom, metals &
mining and information technology. Sectors performing average are automotive, cement &
construction, chemicals, media & entertainment, manufacturing, miscellaneous,
pharmaceuticals and utility. The sectors which are not so favourite are banking & financial
services, conglomerates, consumer non- durables, food & beverages, services and tobacco.
And the sector which failed to attract the fund managers is consumer durables with just 51
funds betting on it.

Thus this analysis not only gives a picture of the mindset of fund managers rather it also
reflects the liquidity existing in each of the sectors. It is not only useful for investors of mutual
funds rather the investors of equity and debt too could take a hint from it. Asset allocation by
fund managers are based on several researches carried on so, it is always advisable for other
investors too take a look on it. It can be further presented in the form of a graph as follow:

Systematic investment plan (in details)


We have already mentioned about SIPs in brief in the previous pages but now going into
details, we will see how the power of compounding could benefit us. In such case, every small
amounts invested regularly can grow substantially. SIP gives a clear picture of how an early
and regular investment can help the investor in wealth creation. Due to its unlimited
advantages SIP could be redefined as “a methodology of fund investing regularly to benefit
regularly from the stock market volatility. In the later sections we will see how returns
generated from some of the SIPs have outperformed their benchmark. But before moving on to
that lets have a look at some of the top performing SIPs and their return for 1 year:

Total
Scheme Amount NAV NAV Date Amount

Reliance diversified 30/5/200


power sector retail 1000 62.74 8 14524.07
Reliance regular savings
22.20 30/5/200 13584.94
equity 1000 8 8 4
principal global
30/5/200 14247.72
opportunities fund 1000 18.86 8 8
DWS investment
30/5/200 13791.15
opportunities fund 1000 35.31 8 7

30/5/200 13769.15
BOB growth fund 1000 42.14 8 2

In the above chart, we can see how if we start investing Rs.1000 per month then what return we’ll get
for the total investment of Rs. 12000. There is reliance diversified power sector retail giving the
maximum returns of Rs. 2524.07 per year which comes to 21% roughly. Next we can see if anybody
would have undertaken the SIP in Principal would have got returns of app. 18%. We can see reliance
regular savings equity, DWS investment opportunities and BOB growth fund giving returns of 13.20%,
14.92%, and 14.74% respectively which is greater than any other monthly investment options. Thus we
can easily make out how SIP is beneficial for us. Its hassle free, it forces the investors to save and get
them into the habit of saving. Also paying a small amount of Rs. 1000 is easy and convenient for them,
thus putting no pressure on their pockets.
Now we will analyze some of the equity fund SIP s of Birla Sunlife with BSE 200 and bank fixed
deposits In a tabular format as well as graphical.

NO. OF Original Returns at BSE FUND


Scheme Name INSTALMENTS inv 200 RETURNS
Birla SL tax relief
'96 144 144000 553190 1684008

Birla SL equity fund 114 114000 388701 669219


Birla frontline equity
fund 66 66000 156269 181127
In the above case, we have taken three funds of Birla sunlife namely Birla sunlife tax relief ’96, Birla
sunlife equity fund and Birla sunlife frontline equity fund. All these three funds follow the same
benchmark ie; BSE 200. Here, we have shown how one would have benefitted if he would have put his
money into these schemes since their inception. And the amount even is a meager Rs. 1000 per month.
Starting from Birla frontline equity fund, we could spot that if someone would have invested Rs. 1000
per month resulting into total investment of Rs. 66000 then it would have amounted to rs.156269 if
invested in BSE 200 whereas the fund would have given a total return of Rs 181127. Now moving next
to Birla sunlife equity fund, a total investment of 114000 for a total of 114 months at BSE 200 would
have given a total return of Rs. 388701 whereas the fund gave a total return of Rs. 669219, nearly
double the return generated at BSE 200. And now the cream of all the investments, Birla sunlife tax
relief ’96. A total investment of Rs. 144000 for a period of 12 years at BSE 200 would have given total
returns of just Rs. 553190 but the Birla sunlife tax relief ’96 gave an unbelievable total return of Rs
1684008.

Thus the above case very well explains the power of compounding and early investment. We have seen
how a meager amount of Rs. 144000 turned into Rs. 1684008. It may appear unbelievable for many but
SIPs have turned this into reality and the power of compounding is speaking loud, attracting more and
more investors to create wealth through SIPs.

Does fund performance and ranking persist?

This project has been a great learning experience for me. But the analyses that are carried
onward these pages are really close to my heart. After taking a look at the data presented
below, an expert might underestimate my efforts. One might think it as a boring task and can
go for recording historic NAVs since last 1 month instead of recording it daily.
But frankly speaking, while tracking the NAVs, I really developed some sentiments with these
funds. Really the ups and downs in the NAVs affected me as if I m tracking my own portfolio.
The portfolio consists of different types of funds. We can see some funds are 5- star rated but
their performances are below the unrated funds. We can also find some funds which performed
very well initially but gradually declined either in short- run or long run. Some funds have high
NAVS but the returns offered are low. We can also see some funds following same benchmark
and reflecting diverse NAV and returns. Even it can be seen that the expense ratios for various
funds varies which may affect the ultimate return.

Now before going into details, lets have a look at those funds: in this downgrading equity
market, we can easily make out that the 1 year return of the fund that was on 17 th of april could
not be sustained till 1 month. One can sort out that the present return of funds has decreased a
lot and subsequently its NAV too has come down. All the funds are showing negative returns
for the last 1 month. Even the two hybrid funds are showing negative monthly returns. That
means all those who bought these funds a month back must be experiencing a negative return.
Although the annual return of the funds have gone down in comparison to what it was offering
a month back. Still the total return is positive. On an average the equity funds are offering a
return of 30% annually, inspite of a week equity market.

Now checking the validity of funds’ ratings, we can see that some of the funds are 5 star or 4
star rated but their returns lag behind the unrated funds. Although, since the ratings include
both risk and return so it will not be a total justice to judge the funds purely on a return basis
but still we can go for it just to judge them on the basis of returns generated.

Looking at the funds, we have three 5 star rated funds, one 4star rated and six unrated funds. In
other way, we have seven equity diversified funds, one equity specialty, one hybrid: dynamic
asset allocation and one hybrid: debt oriented fund. It is not possible to compare each and
every fund in details. So I have compared 2 funds out of this list on the basis of their returns
and expenses.
Here DBS Chola opportunities and ICICI Pru infrastructure follows the same benchmark S&P
CNX NIFTY. In this case, DBS Chola opportunities is a 4 star rated fund whereas ICICI Pru
infrastructure is an unrated fund. The star rating definitely gives DBS a competitive advantage
but now lets have a look at other factors, we can see that ICICI Pru has really performed worse
in the last month. Its 1 month return is -5.8% whereas DBS gave a return of -3.07%. Even if
we consider 6 months return or yearly returns, definitely DBS is a winner. We can easily spot
the difference by change in their rankings even. Considering 1 yr return, we can spot DBS at
no.5 whereas ICICI at no.6 but when we look at the monthly ratings, to our ultimate shock,
DBS is at 52 and ICICI far behind at 172. But if we look at the yearly returns, then there is not
much difference between them, DBS offering returns of 35.17% whereas ICICI offering 34.27.
But looking at the expenses, the expenses charged by ICICI is lower to that of DBS, which
may act as the ultimate factor in choosing the fund in a long run.
Thus at last we can conclude that ratings are totally irrelevant for investors. Here is why
they are totally irrelevant to investor:
1. Mutual fund ratings are based on the returns generated, that is, appreciation of net asset
value, based on the historical performance. So they rely more on the past, rather than
the current scenario.
2. As returns play a key role in deciding the ratings, any change in returns will lead to re-
rating of the mutual fund. If you choose your mutual fund only on the basis of rating, it
will be a nuisance to keep realigning your investment in line with the revision of the
ratings.
3. The ratings don’t value the investment processes followed by the mutual fund. As a
result, a fund following a certain process may lose out to a fund that has given superior
returns only because it has a star fund manager. But there is a higher risk associated
with a star fund manager that the ratings don’t reflect. If the star fund manager quits, it
can throw the working of a mutual fund out of gear and thus affect its performance.

4. The ratings don’t show the level of ethics followed by the fund. A fund or fund
manager that is involved in a scam or financial irregularities won’t get poor ratings on
the basis of ethics. As the star ratings look at just returns, any wrongdoing carried out
by the fund or fund manager will be completely ignored.
5. Ratings also don’t consider two very important factors: transparency and keeping
investors informed. There are no negative ratings awarded to the fund for being
investor-unfriendly.

6. Ratings don’t match the investor’s risk-appetite with their portfolio. As a matter of fact,
investments should be done only after considering the risk appetite of the investor. For
example, equities may not be the best investment vehicle for a very conservative
investor. However ratings fail to take that into account.

Ratings should be the starting point for making an investment decision. They are not the be all
and end all of mutual fund investments. There are other important factors like portfolio
management, age of funds and more, which should be taken into account before making an
investment.

Portfolio analysis tools:

With the increasing number of mutual fund schemes, it becomes very difficult for an investor
to choose the type of funds for investment. By using some of the portfolio analysis tools, he
can become more equipped to make a well informed choice. There are many financial tools to
analyze mutual funds. Each has their unique strengths and limitations as well. Therefore, one
needs to use a combination of these tools to make a thorough analysis of the funds.
The present market has become very volatile and buoyant, so it is getting difficult for the
investors to take right investing decision. so the easiest available option for investors is to
choose the best performing funds in terms of “returns” which have yielded maximum returns.
But if we look deeply to it, we can find that the returns are important but it is also important to
look at the ‘quality’ of the returns. ‘Quality’ determines how much risk a fund is taking to
generate those returns. One can make a judgment on the quality of a fund from various ratios
such as standard deviation, sharpe ratio, beta, treynor measure, R-squared, alpha, portfolio
turnover ratio, total expense ratio etc.
Now I have compared two funds of SBI on the basis of standard deviation, beta, R-squared,
sharpe ratio, portfolio turnover ratio and total expense ratio. So before going into details, lets
have a look at these ratios:

Standard deviation:
in simple terms standard deviation is one of the commonly used statistical parameter to
measure risk, which determines the volatility of a fund. Deviation is defined as any variation
from a mean value (upward & downward). Since the markets are volatile, the returns fluctuate
everyday. High standard deviation of a fund implies high volatility and a low standard
deviation implies low volatility.

Beta analysis:
beta is used to measure the risk. It basically indicates the level of volatility associated with the
fund as compared to the market. In case of funds, as compared to the market. In case of funds,
beta would indicate the volatility against the benchmark index. It is used as a short term
decision making tool. A beta that is greater than 1 means that the fund is more volatile than the
benchmark index, while a beta of less than 1 means that the fund is more volatile than the
benchmark index. A fund with a beta very close to 1 means the fund’s performance closely
matches the index or benchmark.
The success of beta is heavily dependent on the correlation between correlation between a fund
and its benchmark. Thus, if the fund’s portfolio doesn’t have a relevant benchmark index then
a beta would be grossly inappropriate. For example if we are considering a banking fund, we
should look at the beta against a bank index.

R-Squared (R2):

R squared is the square of ‘R’ (i.e.; coefficient of correlation). It describes the level of
association between the fun’s market volatility and market risk. The value of R- squared ranges
from0 to1. A high R- squared (more than 0.80) indicates that beta can be used as a reliable
measure to analyze the performance of a fund. Beta should be ignored when the r-squared is
low as it indicates that the fund performance is affected by factors other than the markets.

For example:
Case 1 Case 2
R2 0.65 0.88
B 1.2 0.9
In the above tableR2 is less than 0.80 in case 1, implies that it would be wrong to mention that
the fund is aggressive on account of high beta. In case 2, the r- squared is more than 0.85 and
beta value is 0.9. it means that this fund is less aggressive than the market.
Sharpe ratio: sharpe ratio is a risk to reward ratio, which helps in comparing the returns given
by a fund with the risk that the fund has taken. A fund with a higher sharpe ratio means that
these returns have been generated taking lesser risk. In other words, the fund is less volatile
and yet generating good returns. Thus, given similar returns, the fund with a higher sharpe
ratio offers a better avenue for investing. The ratio is calculated as:
Sharpe ratio = (Average return- risk free rate) / standard deviation

Portfolio turnover ratio: Portfolio turnover is a measure of a fund's trading activity and is
calculated by dividing the lesser of purchases or sales (excluding securities with maturities of
less than one year) by the average monthly net assets of the fund. Turnover is simply a measure
of the percentage of portfolio value that has been transacted, not an indication of the
percentage of a fund's holdings that have been changed. Portfolio turnover is the purchase and
sale of securities in a fund's portfolio. A ratio of 100%, then, means the fund has bought and
sold all its positions within the last year. Turnover is important when investing in any mutual
fund, since the amount of turnover affects the fees and costs within the mutual fund.

Total expenses ratio: A measure of the total costs associated with managing and operating an
investment fund such as a mutual fund. These costs consist primarily of management fees and
additional expenses such as trading fees, legal fees, auditor fees and other operational
expenses. The total cost of the fund is divided by the fund's total assets to arrive at a percentage
amount, which represents the TER:
Total expense ratio = (Total fund Costs/ Total fund Assets)

Performance report and portfolio analysis of magnum equity fund and magnum
multiplier plus against their benchmark BSE100:
YTD 1M 3M 6M 1Y 3Y 5Y
Magnu -23.73% 9.02% -7.71% -15.18% 26.61% 45.07% 48.96%
m
equity
fund

Magnu -26.16% 5.57% -11.26% -18.00% 21.44% 45.28% 59.31%


m
multipli
er plus
Bench -17.53% 11.74% -2.56% 11.47% 30.71% 40.46% 44.24%
mark
BSE100

Now in the above table, we have two funds from SBI ie; magnum equity fund and magnum
multiplier plus following the same benchmark i.e; BSE 100. In this case, we have compared
their returns during various time periods. We have their returns YTD, during last 1 month,
3month, 6 months, 1 year, 3 year and 5 year. If we look at a long term perspective, then
magnum multiplier plus totally outperformed both magnum equity fund as well as bse 100. In
case of 5 year returns, neither the benchmark nor the magnum equity fund stands anywhere
near multiplier plus. It is greater than equity fund by 10.35% and from benchmark by 15.07%.
but in case of 3 year returns, surely multiplier plus gave the maximum return but it fell sharply
in comparison to its 5 yr return. A 45.28% return scored over equity fund just by a margin of
0.21% and benchmark by a mere 4.28%. now moving down to 1 yr return, we can clearly see
that bse 100 emerges as a true winner. The benchmark gave a return of 30.71% but both the
funds failed to match it even.

But the ultimate surprise comes when we look at the datas of last 6 months. Here not only the
fund mangers failed to beat or match the market. Rather they also performed as laggards,
giving negative returns. When the bse 100 gave returns of 11.47%, these funds were trailing by
29.47% and 26.65% which is a huge figure. In th last 3 months too, both the funds were behind
bse100 but all the three gave negative returns and the difference between them and benchmark
was narrowed down. Again, during last 1 month return of all three got positive but the funds
always remained behind the benchmark. The bse 100 outscored multiplier plus and equity fund
by 6.17% and 2.72% respectively. Similarly, the YTD return of all 3 is negative even then the
benchmark is at a better position than the funds.

From the following analysis we can infer that inspite of all the steps taken; it is not always
possible for the fund managers to always beat the market. Also, the past performance just tells
the background and history of the fund, by looking at it we cannot interpret that the fund will
perform in the same way in the future too. The datas can be presented in the form of a
graph as follow:

Quantitative data:
Ratios Magnum equity fund Magnum multiplier plus
Standard deviation 26.00% 26.90%
Beta 0.96% 0.95%
r-squared 0.84%
Sharpe ratio 1.46% 1.42%
Portfolio turnover 31% 25%
Total expense ratio 2.5% 2.5%

Analysis:
 We can see that the standard deviation of both the funds are more or less same even then the
S.D of multiplier plus is greater than that of equity fund by 0.90%. Generally higher the SD
higher is the risk and vice-versa. Therefore, magnum multiplier plus is riskier than magnum
equity fund.
 The beta of magnum equity fund is higher than that of magnum multiplier plus. Therefore,
equity fund is more volatile than multiplier plus. But beta of both the funds is smaller than 1
that means both the funds are less volatile than the market index. As r- squared values are more
than 0.80 in both the cases, we can rely on the usage of beta for the analysis of these funds.
 A look at the Sharpe ratio indicates that magnum equity has outperformed multiplier plus. A
higher Sharpe ratio of equity fund depicts that these return have been generated taking lesser
risk than the multiplier plus. It Is less volatile than the other.
 R-squared of both the funds are greater than 0.80. it indicates that beta can be used as a reliable
measure to analyze the performance of these funds. Magnum equity fund’s R- squared is
higher. So its beta is more reliable.
 Portfolio turnover ratio of magnum equity fund is higher than multiplier plus. It mean the
manager is frequently churning the portfolio of equity fund than of multiplier plus. It may lead
to an increase in expenses but could be ignored if could generate higher return by changing the
composition of portfolio.
 Total expense ratio of both the funds are same i.e.; 2.5%

In the form of a chart:


Research report

Objective of research;
 The main objective of this project is concerned with getting the opinion of people
regarding mutual funds and what they feel about availing the services of financial
advisors.
 I have tried to explore the general opinion about mutual funds. It also covers why/ why
not investors are availing the services of financial advisors.
 Along with it a brief introduction to India’s largest financial intermediary, SBI has
been given and it is shown that how they operate in mutual fund deptt
Scope of the study:

The research was carried on in the Northern Region of India. It is restricted to Dehradoon. I
have visited people randomly nearby my locality, different shopping malls, small retailers etc.

Data sources:
Research is totally based on primary data. Secondary data can be used only for the reference.
Research has been done by primary data collection, and primary data has been collected by
interacting with various people. The secondary data has been collected through various
journals and websites and some special publications of SBI .

Sampling:

 Sampling procedure:

The sample is selected in a random way, irrespective of them being investor or not or
availing the services or not. It was collected through mails and personal visits to the
known persons, by formal and informal talks and through filling up the questionnaire
prepared. The data has been analyzed by using the measures of central tendencies like
mean, median, mode. The group has been selected and the analysis has been done on
the basis statistical tools available.
 Sample size:

The sample size of my project is limited to 200 only. Out of which only 135 people
attempted all the questions. Other 65 not investing in MFs attempted only 2 questions.

 Sample design:

Data has been presented with the help of bar graph, pie charts, line graphs etc.

 Limitation:

 Time limitation.

 Research has been done only at Dehradoon.

 Some of the persons were not so responsive.

 Possibility of error in data collection.

 Possibility of error in analysis of data due to small sample size.


Data analysis:

 Have you ever invested/ interested to invest in mutual funds?

YES 135
NO 65

 .what is the most important reason for not investing in mutual funds? (only for
above 65 participants)

Lack of knowledge about mutual funds 25


Enjoys investing in other options 10
Its benefits are not enough to drive you 18
for investment
No trust over the fund managers 12
 .where do you find yourself as a mutual fund investor?

Totally ignorant 28
Partial knowledge of MFs 37
Aware of only scheme in which invested 46
Good knowledge of MFs 24
 .where from you purchases mutual funds?

Directly from the AMCs 33


Brokers only ( large intermediaries) 28
Broker/ sub-brokers 59
Other sources 15
QUESTIONNAIRE
A study of preferences of the investors for investment in mutual funds.

1. Personal Details:

(a). Name:-

(b). Add: - Phone:-

(c). Age:-

(d). Qualification:-

Graduation/PG Under Graduate Others

(e). Occupation. Pl tick (√)

Govt. Ser Pvt. Ser Business Agriculture Others

(g). What is your monthly family income approximately? Pl tick (√).

Up to Rs. 10,001 to Rs. 15,001 to Rs. 20,001 to Rs. 30,001 and


Rs.10,000 15000 20,000 30,000 above

2. What kind of investments you have made so far? Pl tick (√). All applicable.

a. Saving account b. Fixed deposits c. Insurance d. Mutual Fund


e. Post Office-NSC, etc f. Shares/Debentures g. Gold/ Silver h. Real Estate

3. While investing your money, which factor will you prefer?


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

4. Are you aware about Mutual Funds and their operations? Pl tick (√). Yes No

5. If yes, how did you know about Mutual Fund?

a. Advertisement b. Peer Group c. Banks d. Financial Advisors

6. Have you ever invested in Mutual Fund? Pl tick (√). Yes No


7. If not invested in Mutual Fund then why?

(a) Not aware of MF (b) Higher risk (c) Not any specific reason

8. If yes, in which Mutual Fund you have invested? Pl. tick (√). All applicable.

a. SBIMF b. UTI c. HDFC d. Reliance e. Kotak f. Other. specify

9. If invested in SBIMF, you do so because (Pl. tick (√), all applicable).

a. SBIMF is associated with State Bank of India.


b. They have a record of giving good returns year after year.
c. Agent’ Advice

10. If NOT invested in SBIMF, you do so because (Pl. tick (√) all applicable).

a. You are not aware of SBIMF.


b. SBIMF gives less return compared to the others.
c. Agent’ Advice

11. When you plan to invest your money in asset management co. which AMC will you prefer?

Assets Management Co.


a. SBIMF
b. UTI
c. Reliance
d. HDFC
e. Kotak
f. ICICI

12. Which Channel will you prefer while investing in Mutual Fund?

(a) Financial Advisor (b) Bank (c) AMC

13. When you invest in Mutual Funds which mode of investment will you prefer? Pl. tick (√).

a. One Time Investment b. Systematic Investment Plan (SIP)


14. When you want to invest which type of funds would you choose?

a. Having only debt b. Having debt & equity c. Only equity portfolio.
portfolio portfolio.

15. How would you like to receive the returns every year? Pl. tick (√).

a. Dividend payout b. Dividend re-investment c. Growth in NAV

16. Instead of general Mutual Funds, would you like to invest in sectorial funds?
Please tick (√). Yes No