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DECLARATION
I, GURURAJ S, here by declare that this Dissertation titled Risk and return of
investors in mutual funds at Bangalore City is based on original project study
conducted by me under the guidance of Dr. N.S. Vishwanath.
This has not been submitted earlier for the award of any other degree/Diploma
to Bangalore University or any other University.
Place: Bangalore
Date: 16 / 06 / 2005
Students signature
(GURURAJ. S)
Place: Bangalore.
Date: 16 / 06 / 2005
PRINCIPAL CERTIFICATE
Certified that this dissertation titled Risk and return of investors in mutual funds
at Bangalore City is based on original project study conducted by Mr.
GURURAJ. S of IV semester MBA under the guidance of Dr. N.S. Vishwanath.
This dissertation Report is based on the training undergone by the student and
has not formed the basis for the award of any other Degree / Diploma by
Bangalore University or any other University.
Place: Bangalore
Date: 16 / 06 / 2005
ACKNOWLEDGMENT
I am grateful to every one who have helped me throughout this project
work and made the project report a successful one. It gives me great
pleasure to extend my sincere thanks and gratitude to all those who have
been instrumental in the completion of this project.
(GURURAJ.S)
INTRODUCTION TO FINANCE
It is rightly said that finance is the lifeblood of any business. Besides being one of the
scare set elements it is also the most indispensable requirement. Finance is one of the
basic foundations of all kinds of economic activities. It is the master key, which
provides access to all the sources for being employed in manufacturing and
merchandising activities.
It is true that money gets more money, but it is so only when it is properly rotated and
managed. Hence efficient management of every business enterprise is closely linked
with efficient management of its finance.
FINANCIAL MANAGEMENT
Financial management emerged as a distinct field of study at turn of the country. Its
evolution may be divided into three broad phases: the traditional phase, the
transitional phase and the modern phase. Since the beginning of the modern phase
many significant and seminal developments have occurred in the fields of capital
budgeting, capital structure theory, efficient market theory, option pricing theory,
agency theory, arbitrage pricing theory, valuation models, dividend policy, working
capital management, and behavioral finance.
Investment decision
Financing decision
Dividend decision
Financial Institutions
Funds
Deposits/shares
Suppliers of
Funds
Commercial Banks
Insurance Companies
Mutual Funds
Provident Funds
Non-Banking Financial
Companies
Private
Placement
Individual
Businesses
Governments
Demanders of
Funds
Individual
Businesses
Governments
Financial
Markets
Funds
Money Market
Capital Market
Securities
making
It helps in dealing with the problem of informational asymmetry
INTRODUCTION TO INVESTMENT:
Investment is a postponed consumption; only in response to a rate of return which
must be suitably adjusted for inflation and risk.
When considering inflation, time value of money or expected rate of return is taken
into account.
When considering risk, the following are some of the risk faced by; an investor:
1. Inflation risk
2. Interest risk
3. Default risk: systematic and unsystematic risk
4. Environment risk: political, social etc.,
Hence basic investment decision is concentrated on TRADE-OFF between risk and
return.
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Hence an investor tries to blend the above-mentioned variables in the investment that
he/she makes.
However many a times, in the fear of risks such as default risk, interest risk, the
investor may end up in investing in such kind of investments, the returns of which
area neither sufficient to cover up the inflation risk nor the cost of capital.
It is here the magic of portfolio works investors tries to manage the portfolio in such a
way that risk is distributed and fairly good returns are assured through a mix of debt
and equity.
GENERALLY INVESTMENT PROCESS OF AN INDIVIDUAL INCLUDES
THE FOLLOWING
1. Determine the investors objective policy
2. Undertake security analysis (fundamental and technical)
3. Construction of portfolio
4. Review
5. Evaluate the performance of the portfolio
An individual is also unlikely to have the knowledge, skills, inclination and time to
keep track; of events, understand their implication and act speedily. He/she finds it
difficult to keep track of ownership of his assets, investments, and brokerage dues and
bank transaction etc., He/she is however risk averse, preferring safer investment with
regular returns to capital appreciation and risk aggression. The investor is bound to be
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cautious, having lost considerable saving in the equity market and also in equity
linked fund schemes.
Hence a MUTUAL FUND is the ideal investment for individuals, especially for those
who want to avail the investment benefits but unable to understand the intricacies of
the capital market operation.
A Mutual Fund appoints professional qualified and experienced staff that manages
each of these functions on full time basis. The large pool of money collected in the
fund allows it to hire such staff at a very low cost of each investor. In effect the
Mutual Fund vehicle exploits economics of scale in all three areas-research,
investment and transaction processing.
together to invest money collectively is not new, the mutual fund as we know is a 20th
Century phenomenon.
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LITERATURE REVIEW
This dissertation provides an overview of mutual funds investment vehicles that
pool the money of thousands of investors to invest in a wide variety of securities with
a specific objective. It discusses how mutual funds provide professional management
and diversification and because of this, are safer and less volatile than individual
stocks and bonds. It examines how different classes of mutual funds have different
objectives, such as growth, income, growth and income, etc. and how the mutual fund
or funds those investors select reflect their objectives and tolerance for risk.
Generally there are two types of mutual funds. The first type is called an open ended fund . In an open-ended fund, the fund does not have a set number of shares. It
will continue to issue shares as long as investors will buy them. Investors can also
redeem shares. At the end of each trading day, the fund manager will calculate the net
asset value of the fund. The NAV is the total value of the assets held by the fund
divided by the total number of fund shares. Shares are purchased or redeemed on the
basis of the NAV.
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low cost. Anybody with a minute surplus of even a few thousand rupees can invest in
Mutual Fund. Each mutual fund has a defined investment objective and strategies.
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TYPES OF FUNDS
There are many types of mutual funds available to the investor. However, these
different types of funds can be grouped into certain classifications for better
understanding. From the investors perspective, we would follow three basic
classifications.
Firstly, funds are usually classified in their constitution as closed-end or open-end.
The distinction depends upon whether they give the investors the option to redeem
and buy units at any time from the fund itself (open end) or whether the investors
have to await a given maturity before they can redeem their units to the fund (closed
end).
Funds can also be grouped in terms of whether they collect from investors any
charges at the time of entry or exit or both, thus reducing the investible amount or the
redemption proceeds. Funds that make these charges are classified as load funds, and
funds that do not make any of these charges are termed no-load funds
Finally, funds can also be classified as being tax exempt or non tax- exempt,
depending on whether they invest in securities that give tax-exempt returns or not.
Currently in India, this classification may be somewhat less important, given the
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recent tax exemption given to investors receiving dividends from virtually all mutual
funds.
By Structure:
Open ended funds
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 related prices. The key feature of open-end schemes is liquidity.
Closed-ended funds
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 exchange 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 funds
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Interval funds combine the features of open-ended and close-ended schemes. They
are open for sale or redemption during pre-determined intervals at NAV related
prices.
BY INVESTMENT OBJECTIVE:
GROWTH FUNDS
The aim of growth funds is to provide capital appreciation over the medium to longterm. Such schemes normally invest a majority of their corpus in equities. It has been
proven that returns from stocks, have outperformed most other kind of investments
held over the long term. Growth schemes are ideal for investors having a long-term
outlook seeking growth over a period of time
INCOME FUNDS
The aim of income funds is to provide regular and steady income to investors. Such
schemes generally invest in fixed income securities such as bonds, corporate
debentures and government securities. Income funds are ideal for capital stability and
regular income.
BALANCED FUNDS
The aim of balanced funds is to provide both growth and regular income. Such
schemes periodically distribute a part of their earning and invest both in equities and
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OTHER SCHEMES:
Tax saving schemes
These schemes offer tax rebates to the investors under specific provisions of the
Indian income tax laws as the government offers tax incentives for investment in
specified avenues. Investments made in equity linked savings schemes (ELSS) and
pension schemes are allowed as deduction u/s 88 of the income tax act, 1961. The act
also provides opportunities to investors to save capital gains u/s 54EA and 54EB by
investing in mutual funds, provided the capital asset has been sold prior to April 1,
2000 and the amount is invested before September 30, 2000
SPECIAL SCHEMES
Industry specific schemes invest only in the industries specified in the offer
document. The investment of these funds is limited to specific industries like
INFOTECH, FMCG and PHARMACEUTICALS etc.
Index schemes
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Sectoral schemes
Sect oral funds are those, which invest exclusively in a specified
The structure that is required to be followed by mutual funds in India is laid down
under SEBI (mutual fund) regulations, 1996. in the following paragraphs, we take a
look at the structure of each of the fund constituents.
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fund is akin to the promoter of a company as he gets the fund registered with SEBI.
The sponsor will for a Trust and appoint a Board of Trustees. The sponsor will also
generally appoint an asset management company as fund managers. The sponsor,
either directly or acting through the Trustees, will also appoint a custodian to hold the
fund assets. All these appointments are made in accordance with SEBI regulations.
As per the existing SEBI regulations, for a person to qualify as a sponsor, he must
contribute at least 40% of the net worth of the AMC and possess a sound financial
tack record over five years prior to registration.
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TRUSTEES
A board of Trustees - a body of individuals, or a Trust company a corporate body,
may manage the trust -the mutual fund -. Most of the funds in India are managed by
Boards of Trustees. While the provisions of the Indian Trust Act, will govern the
board of Trustees where the trustee is a corporate body, it would also be required to
comply with the provisions of the companies Act, 1956. The Board or the Trustee
Company, as an independent body, acts as protector of the unit-holders interests. The
Trustees do not directly manage the portfolio of securities. For his specialist function,
They appoint an asset management company. They ensure that the unsure that the
fund is managed by the AMC as per the defined objectives and in accordance with the
Trust deed and SEBI regulations.
The trust is created through a document called the TRUST DEED that is executed by
the fund sponsor in favour of the Trustees. The Trust Deed is required to be stamped
as registered under the provisions of the Indian Registration Act and registered with
SEBI. Clauses in the Trust Deed, inter alia, deal with the establishment of the Trust,
the appointment of Trustees, their powers and duties, and the obligations of the
Trustees towards the unit-holders and the AMC, and these clauses also specify
activities that the fund /AMC cannot undertake. The third schedule of the SEBI (MF)
Regulations, 1996 specifies the contents of the Trust Deed.
The Trustees being the primary guardians of the unit holders funds and assets, a
Trustee has to be a person of high repute and integrity. SEBI has laid down a set of
conditions to be fulfilled by the individuals being proposed as trustees of mutual
funds-both
independent
and
non-independent.
Besides
specifying
the
disqualifications, SEBI has also set down the Rights and obligations of the
Trustees. Broadly, the Trustees must ensure that the investors interests are
safeguarded and that the AMCs operations are alo ng professional lines. They must
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also ensure that the management of the fund is in accordance with SEBI regulations.
Some important rights and obligations are listed below.
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13. The fund that advertises yield must use standardized computations
such as annual dividend on face value, annual yield on the purchase
price, and annual compounded rate of return.
14. A mutual fund scheme shall not invest more than 15% of its NAV in
debt instruments issued by a single issuer that are rated not below
investments grade by a credit rating agency authorized to carry out
such activity under the Act. Such investment limit may be extended to
20% of the NAV of the scheme with the prior approval of the Board of
Trustees and the Board of Asset Management Company. Provided that
such limit shall not be applicable for investments in government
securities and money market instruments.
15. The initial issue expenses in respect of any scheme may not exceed six
percent of the funds raised under that scheme.
16. Every mutual fund shall buy and sell securities on the basis of
deliveries and shall in all cases of sale, deliver the securities and shall
in no case put itself in a position whereby it has to make short sale or
carry forward transaction or engage in badla finance. Provided that
mutual funds shall enter into derivatives transactions in a recognized
stock exchange for the purpose of hedging and portfolio balancing, in
accordance with the guidelines issued by the Board.
17. No mutual fund under all its schemes should own more than 10% of
any companys paid up capital carrying voting rights.
18. A scheme may invest in another scheme under the same asset
management company or any other mutual fund without charging fees,
provided that aggregate inter scheme investment made by all schemes
under the management of any other asset management company shall
not exceed 5% of the net asset value of the mutual fund.
19. Every mutual fund shall, get the securities purchased or transferred in
the name of the mutual fund on account of the concerned scheme,
wherever investments are intended to be of long-term nature.
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20. No mutual fund scheme shall invest more than 10% of its NAV in the
equity shares or equity related instruments of any company
Mutual fund in India is not very well established because very well established
because very few know about the existence of the scheme and its benefits. Those who
know are also hesitant to invest because of the fear involved attributable to the
absence of complete transparency.
The present work involves the problems faced by investors in mutual fund and the
ways, means to overcome them. The study is also done to express that those
interested in shares can do so through mutual funds there by reducing the risk of
direct exposure of the investors to security market.
SCOPE OF STUDY
This study draws its parameters on the investors knowledge of investment in g eneral
with prominence to mutual funds. An attempt is also made to deduce the mindset of
the investors to know their requirement and expectations from these investments.
To analyze the opinion of investors about mutual fund, where do they place them
among the various other investment alternative. What is that they would like mutual
funds to provide them, and what steps do they feel is necessary to rank the mutual
fund as one of the best investment alternative
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The method of data collection will be through a questionnaire, for the above study
primary data and secondary data are considered.
Primary data: The data collected through the questionnaire.
Secondary data: The data collected from published reports, newspaper like economic
times, business standard and journals.
RESEARCH METHODOLOGY
Research is a systematic study. It is a search means an intensive a powerful search
for knowledge and understanding social, physical phenomenon. It is a method for the
discovery of true value in scientific way.
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SAMPLING PLAN:
Sample unit: Investors
Sample size: 50
Sampling method: Random Sampling
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investment options available, but also a proper investment strategy that is suitable to
his situation and needs.
Mutual fund investor has to time his investment properly, that can be done only by
proper advice of a sound financial advisor. The investor should exit at the right time
after booking profits, staying longer might affect his returns.
The investor has a herd mentality. They blindly follow the market trend. For exheavy investment in technology sector funds during recent years. To ensure
adequate returns the investors must diversify his risk and returns.
Limitations:
1. The study was restricted only at Bangalore City.
2. Number of Sample selected was 50.
3. The analysis of investors was restricted to HDFC.
4. Detailed study of Mutual Funds Products could not be accomplished.
5. The study was limited for 40 days.
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INDUSTRY PROFILE:
The Indian mutual fund industry began with the formation of the unit trust of India
(UTI) in 1964 by the government. UTI was formed as a non-profit organization
governed under a special legislation, the unit trust of India act, 1963. it had a
monopoly up to 1987 and during this period UTI launched a series of equity and debt
schemes and established itself as a household name with assets under management of
rupees 4563 crores and unit holders accounts of slightly under 3 million by mid 1987.
UTI growth continued up to 1986 when the strong entry of private sector players saw
its share of the market reducing sharply although UTI continues to be a dominant
force in the Indian financial services industry with assets of over rs.67000 crores as of
December 31st, 1999.
In 1987, the industry saw the entry of public sector mutual funds, that is funds
promoted by public sector banks and financial institutions, such as SBI, CANARA
BANK, LIC and IDBI. Predictably they were given the brand of their promoters such
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as SBI mutual fund, can bank mutual fund, LIC mutual fund and
IDBI
mutual fund.
Other public sector mutual funds also entered the market but UTI continued to remain
the dominant player with a share of 84% in 1991-1992.
In 1993 private and foreign fund houses were allowed to operate in India. Today
about 36 fund houses private, state and foreign owned operate in the country, but the
Indian mutual fund industries pace off growth can be hardly be described as frenetic.
On June 30, 2004 Indian mutual funds commanded assets of Rs. 1,04,762 crore, 8%
of the retail deposit of scheduled commercial banks.
The industry over 550 schemes in equity, debt, gilt and balanced funds offered by 36
fund houses. They include prudential
ICICI, HDFC,
ICICI
industry followed by HDFC mutual fund after it took over Zurich India mutual funds.
The share of private players in the Indian mutual fund industry has going up steadily.
Prudential icici is poised to overtake uti asset management in terms of assets under
management (AUM). PRUDENTIAL ICICI has asset of Rs.12,637 crore as against
uti AMCS Rs.16, 015 crore at the end of June 2004. Other private funds are also
catching up with hdfc mutual fund and Franklin Templeton at Rs.11, 961 and
Rs.11,152 crore respectively.
INDIAN MUTUAL FUND INDUSTRY
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UTI
PUBLIC SECTOR
PRIVATE SECTOR
SBI MF
LIC MF
GIC MF
SUN F&C
BIRLA SUN LIFE
ALLIANCE CAPITAL
PRUDENTIAL ICICI
UTI commenced its operations from July 1964 with a view to encouraging savings
and investment and participation in the income, profits and gains accruing to the
corporation from the acquisition, holding, management and disposal of securities.
Different provisions of the uti Act laid down the structure of management, scope of
business, powers and functions of the trust as well as accounting, disclosures and
regulatory requirements for the Trust.
One thing is certain the fund industry is hero to stay. The industry was one-entity
show till 1986 when the uti monopoly was broken when SBI and Can bank mutual
fund entered the arena. This was followed by the entry of others like BOI, LIC, GIC,
etc. sponsored by public sector banks. Starting with an asset base of Rs 0.25 bn in
1964 the industry has grown at a compounded average growth rate of 26.34% to its
current size of Rs 1130 bn.
The period 1986-1993 can be termed as the period of public sector mutual funds.
From one player in 1985 the number increased to 8 in 1993. The party did not last
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long. When the private sector made its debut in 1993-1994, the stock market was
booming.
The opening up of the asset management business to private sector in1993 saw
international players like Morgan Stanley, Jordan Fleming, jpmorgan, George soros
and capital international along with the host of domestic players join the party. But
for the equity funds, the period 1994-1996 was one of the worst in the history of
Indian mutual funds.
1999-2000 year of the funds
Mutual funds have been around for a long period of time to be precise for 36 years
but the year of 1999 saw immense future potential and developments in the sector.
This year signaled the year of resurgemes the revival of the funds the AMCS, the unit
Holders, the other related parties. However the sole factor that gave life to the revival
of the funds was the union budget. The budget bought about a large number of
changes in one stroke. An insight of the union budget on mutual fund taxation
benefits is provided later.
It provided center stage to the mutual funds, made them more attractive and provides
acceptability among the investors. The union budget exempted mutual funds dividend
given out by equity-oriented schemes from tax, both at the hands of investors as well
as the mutual funds. No longer were the mutual funds interested in selling the concept
of mutual find they wanted to talk business, which would mean to increase asset base,
and to get asset base, and investor base they had to fully arm with a whole lot of
schemes for every investor. So new schemes for new IPOs was inevitable. The quest
to attract investors extended behind just new schemes. The finds started to regulate
themselves and were all out on winning the trust and confidence of the investors
under the aegis of the association of the mutual funds of India.
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One can say that the industry is moving from infancy to adolescence, the industry is
maturing and the investors and funds are frankly and openly discussing difficulties
and opportunities and compulsion.
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13%
3%
19%
65%
liquid funds
debt finance
euity funds
hybrid funds
From the above, we see that the Indian mutual fund industry is 65% debt oriented, 19%
liquid, 13% equity and 3 % hybrid. For companies to generate more income they should
concentrate on equity funds as they generate more income compared to other funds.
The fact is that equity funds do carry a larger amount of risk. But the company should
take calculated risk to generate larger amount by investing in these funds.
HDFC-HISTORY
HDFC was incorporated in 1977 as the first specialized housing finance
institution in India.
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housing.
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exchange.
The standard life assurance company was present in the Indian life
insurance market from 1847 to 1938 when agencies were setup in kolkata and
Mumbai. The standard life insurance company was therefore keen to re-enter the
Indian market and in 1995, signed an agreement with HDFC to launch an insurance
joint venture. HDFC and standard life investments limited are neither responsible nor
liable for any loss resulting from the operation of the schemes beyond their
contribution of an amount of Rs. 1 lakh each made by them towards the corpus of the
mutual fund.
MISSION:
To be a world class financial institution -benchmarking themselves against
international standards and best practices.
OBJECTIVES:
To build sound customer franchises across distinct business so as to be preferred
provider of financial services to achieve a healthy growth in profitability and
customer base. To be committed to do this while ensuring the highest levels of
ethical standards, professional integrity and regulatory compliance.
VISION:
To be a dominant player in the Indian mutual fund space recognized for its high
levels of ethical and professional conduct and a commitment towards enhancing
investor interest.
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The best performing categories were debt-medium term and debt-gilt 13.67% and
19.51%, respectively. As against that, Equity-tax planning schemes posted 15.09%
Returns, while Equity-Balanced schemes posted 9.73%. Diversified equity schemes
returned 10.23% on an average.
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Improving market share
Earning momentum superior to peer group
VALUATION CRITERIA
The current share price should not discount growth beyond 2 years.
debt equity ratio is more than 1.5, increase valuation discount
If
The company should exhibit positive trend in EVA generation
also look at other valuation measures like P/BV, Market Cap/Sales &
We
nbsp
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Investment plan: ideal for long-term investors, this plan aims to enhance returns by
investing in longer maturity instruments. The portfolio has no restriction on the
maturity of the security. Investors can choose the quarterly dividend option*.
SERIAL PLANS: several plans maturing at 2 years intervals starting on December
31,2001 up to December 31,2019 that allow investors to nearly estimated their returns
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if the investment is held till maturity. The ideal alternative to fixed deposits of similar
maturity with the safety of government Securities. Investors can choose quarterly
dividend option or the growth option. Payable subject to availability and adequacy of
distributable surplus.
INVESTMENT OBJECTIVE
K Balance seeks to exploit the capital appreciation of equity and the stable returns of
debt. By investing a substantial amount in debt and money market instruments, the
scheme aims to minimize the risk that arises out of even the most carefully picked
equity stocks.
The scheme usually has an exposure of about 51% to 55% on equity and the rest in
debt instruments. A combination that in our opinion gives you a perfect balance
between stability and growth.
K Balance is ideally suited for first time investors in equity schemes
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advisory company. Merrill lynch has a40% equity stake in DSP ML. In addition, ML
has also invested in a separate joint venture with DSP ML DSP Merrill lynch
investment managers Limited (DSPMLIM)
In India, DSP ML is leading underwriter and broken for debt and equity securities
and a leading advisor to corporations, institutions and state governments. For private
customers, our platform of products and service provides access to a robust range of
investing and wealth building tools with the personal guidance of financial
consultants. DSPML is also among the first firms to set up a full- fledged research
team in India. The Company is among the major players in the debt and equity
markets and is also a primary dealer of government securities.
DSP Merrill Lynchs credentials are best supported with accolades received DSP ML as the
Best Local Equity House in India for the same period. Additi onally, Euro money magazine
voted DSP ML Best Domestic equity Houses in India in their Awards of Excellence for
2002.
MERRILL LYNCH
Merrill Lynch is one of the worlds leading financial management and advisory
companies with offices in 37 countries and total client assets of approximately $1.4
trillion. As an investment bank, it is a leading global under writer of debt and equity
securities and strategic advisor to corporations, governments, institutions, and
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More than these innovations themselves, its where these s peak of creativity spring
from that gives a real insight into what drives us the desire to provide the very best
to investors. Intense research and superior investment results, service that delights,
being accessible, and straight talking and openness on how your funds are being
managed.
We are professional in the way we work, but with a personal touch. Towards this
end, we look forward to hearing from you on what you feel about us and how we can
do more for you.
Who We Are
Pioneer ITI is Indias fir st mutual fund in the private sector. Today, we manage
Rs.3647 crores in assets for over 745,000* investors across a range of growth,
balanced, income, liquid and tax saving funds. In the open- end equity funds
category, we lead in terms of assets, and have emerged as the most preferred fund
house in India.
Ever since we launched our first two funds, Blue-chip and prima, in October 1993,
we have been recognized as an innovative fund that provides superior investment
results, exemplary service, complete product choice and total transparency in the way
we operate and invest.
Pioneer ITI is a joint venture between pioneer one of Americas oldest mutual funds
and ITI, one of Indias established finance companies. Pioneer helped found the
modern mutual fund industry in the US in 1928, and has operations in several
countries across the globe.
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Pioneer has recently become part of the Uni Creditio Italino Group one of Italys
largest banking companies with over USD 150 billion in management company,
Pioneer Global Asset Management, with a strong base in both the US and Europe and
assets under management of over USD 100 billion (as on December 2000).
The Investment Trust of India was established in 1946 and is one of Indias well known and highly regarded financial services company.
Our mission is to offer individuals and institutions an array of investment options that
will fulfill their financial goals.
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The joint venture was formed with the key objective of providing the Indian investor
mutual fund products to suit a variety of investment needs, the AMC has already
launched a range of products to suit different risk and maturity profiles.
Prudential ICICI Assets Management Company Limited has a net worth of about
Rs.78.13 crores as of March 31,2002. Both prudential and ICICI have a strategic
long-term commitment to the rapidly expanding financial services sector in India.
Key Indicators
As of May 2000
Assets under
Management
Number of Funds
Managed
As on June 30,2002
Rs.160 crore
Rs.7748.31 crore
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GUIDING PRINCIPLES
Prudential ICICI will conduct its business with
Honesty and trustworthiness in all interactions.
pioneer spirit and excellence in action
A
Collaboration and teamwork.
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240 investment products, available under the Franklin Templeton and Mutual Series
brand names, serviced and supported by 6,400 employees in more than 29 countries.
With over 50 years of experience in international investment management and offices
in Franklin Templeton has achieved the Dalbar Service Award in the US six times
in the past ten years for superior customer service and back office support.
Franklin Templeton in India
As part of Franklin Templetons thrust in expanding business in key interna tional
markets, Franklin Templeton set-up an office in Mumbai, India in January 1996. The
firm now has offices in Ahmedabad, Bangalore, Calcutta, Chennai, Delhi, Hydrabad,
Kochi, Lacknow, Mangalore and Pune and manages assets of over Rs.4000 crores as
an June 30, 2002.
At Franklin Templeton we believe that individuals differ in their investment needs
depending on their financial goals, risk taking ability and time horizon available to
meet those goals. To cater to these different needs, mutual funds provide individuals
the flexibility to create an investment plan, based on ones individual financial goals.
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F& C are the F & c Emerging Markets Limited, a part of the F & C Group and SUN
securities (India) Pvt Limited, the Indian financial services arm of the SUN Group
Investment philosophy
It is this philosophy, which guides the day-to-day investment management in all its
schemes. The equity investment philosophy guides investment decisions in the Value
Fund and the equity portion of the Balanced Fund, while the debt investment
philosophy guides investment decisions in the Money Value Fund and the debt
portion of the Monthly Income plan.
SUN F& Cs investment philosophy consists of two elements Investment Approach
& Investment Style.
Investment Approaches
Typically there are two common approaches used by fund managers for their
investment philosophy
1. Top-down Approach
Focuses on key macro economic indicators and trends, followed by a study of
individual sectors in the economy to form an outlook on their future prospects.
Thought this process, business opportunities in different sectors are identified
and accordingly the best stocks within the identified sectors are selected for
investment. Hence, attractive industries are identified first and then
attractive stocks are identified within those industries
2. Bottom-up-Approach
This approach focuses on identifying individual high-performing companies
with outstanding management whose business is growing faster than any of its
peers within or outside their industry.
52
INVESTMENT STYLES
The common styles used by fund mangers for their investment philosophy are:
1. Value Investing
Fund managers employing the value approach look for companies trading at a
discount to their intrinsic worth. Simply put, these companies are quoting at a price
earnings (P/E) multiple lower than what it should be their management, industry
outlook and balance sheet indicators. Hence, there exists a potential for the P/E of
these companies being adjusted upwards over time as the markets realize their
intrinsic worth. Such a change P/E is also called re rating of stock.
2. Growth Investing
Growth involves investing in stocks of companies whose businesses are expected to
show healthy growth in future earnings. Here, the companys price will move up not
because the P/E will improve (no re rating) but because the EPS will go up. This is
because, the price of a share is a function of the P/E multiplied by the EPS.
3. Momentum Investing
Fund managers using momentum investing use technical indicators to buy low and
sell high in the short run. This means that they do not rely on indicators such as P/E
or EPS but buy/sell decisions purely on price movements of that share, however good
or bad the company may be. This approaches is commonly used for stocks that are
highly volatile and where profits opportunities exist in short term trading of these
stocks.
It may also be worth explaining here the difference between investment philosophy
and investment objective, since these two terms are often used and are confusing to
most investors. While investment objectives is usually associated with a particular
scheme investment objective of the SUN F& C Value Fund is to generate long-term
capital growth from a portfolio substantially consisting of equity and related
53
Market Trends
A lone UTI with just one scheme in 1964 now competes with as many as 550 odd
products and 36 players in the market. In spite of the stiff competition and losing
market share, UTI still remains a formidable force to reckon with.
54
Last six years have been the most turbulent as well exiting ones for the industry.
New players have come in, while others decided to close shop by either selling off or
merging with others. Product innovation is now passing with the game shifting to
performance delivery in fund management industry like distributors, more mature and
responsible.
The industry is also having a profound impact on financial markets. While UTI has
always been a dominant player on the bourses as well as the debt markets, the new
generations of private funds that have gained substantial mass are now seen flexing
their muscles. Fund managers by their selection criteria for stocks have forced
corporate governance on the industry. By rewarding honest and transparent
management with higher valuations, a system of risk-reward has been created where
the corporate sector is more transparent then before.
Funds have shifted their focus to the recession free sectors like pharmaceuticals,
FMCG and technology sector. Funds performances are improving. Funds collection,
which averaged at less than Rs.100 billion per annum over five year period spanning
1993-98 doubled to Rs.210 billion in 1998-99. in the current year mobilization till
now have exceeded Rs.300 billion. Total collection for the current financial year
ending is expected to reach Rs.450 billion.
What is particularly noteworthy is that bulk of the mobilization has been by the
private sector mutual funds rather than public sector mutual funds. Indeed private
Mutual Funds saw a net inflow of Rs.7819.34 crore during the first nine months of
the year as against a net inflow of Rs.604.40 crore in the case of public sector funds.
55
Mutual funds are now also competing with commercial banks in the race for retail
investors savings and corporate float money. The power shift towards mutual funds
has become obvious. The coming few years will show that the traditional saving
avenues are losing out in savings accounts are as good as locking up their deposits in
a closet. The fund mobilization trend by mutual funds in the current year indicates
that money is going to mutual funds in a big way. The collection in the first half of
the financial year 1999-2000 matches the whole of 1998-99.
India is at the first stage of a revolution that has already peaked in the U.S. the U.S.
boasts of an asset base that is much higher than its bank deposits. In India, mutual
fund assets are not even 10% of the bank deposits, but this trend is beginning to
change. Recent figures indicate that in the first quarter of the current fiscal year
mutual fund assets went up by 115% whereas bank deposits rose by only 17%. This
is forcing a large number of banks to adopt the concept of narrow banking wherein
the deposits are kept in Gilts and some other assets, which improves liquidity and
reduces risk. The basic fact lies that banks cannot be ignored and they will not close
down completely. Their role as intermediaries cannot be ignored. It is just that
Mutual Funds are going to change the way banks do business in the future.
Low
High
MUTUAL
FUNDS
Better
Low
56
expenses
Risk
Investment option
Network
Liquidity
Quality of assets
Interest calculations
Guarantee
Low
Less
High penetration
At a cost
Not transparent
Min bal b/w 10th & 30th of
every month
Max Rs.1 lakh on deposits
Moderate
More
Low but improving
Better
Transparent
Every day
None
DATA ANALYSIS
The data was collected from both primary and secondary sources.
The data was collected thought administrating structured questionnaire to prospective
and current investors. The secondary data was collected from published reports in
57
Newspaper, Magazines etc., and the data after collection need to be processed and
analyzed in accordance with the outline laid down for the purpose at the time of
developing the research plan. The samples were processed and classified according
to their response.
EDITING:
Data collected though questionnaire will be in crude form and not ready for analysis.
Editing is done to correlate the data collected with the purpose, plan of the research
and facilitate coding and tabulation.
CODING:
Coding is done for efficient analysis of data collected.
CLASSIFICATION:
Classification of raw data collected was done to reduce the large volume of
homogeneous group to arrive at a meaningful relationship.
TABULATION:
58
The process of tabulation involved combining and totaling of the collected data. Since
the questionnaire involved in the study was only 50, manual tabulation was done and
also due to the limited scope of use of statistical tools.
INTERPRETATION OF DATA:
The primary data collected in the form of questionnaire is tabulated in the form of
table. Pie chart and graphs, given in succeeding pages. Also the tabular column are
given a number, each of which bears a header.
59
Sl
No.
Status
Sex
Age
Educational level
4
Occupation
5
Income per annum
Annual Savings
Description
Male
Female
Total
Below 25yrs
26-35 yrs
36-50yrs
51-60yrs
>61yrs
Total
Under Graduate
Graduate
Post Graduate
Others
Total
Govt.Service
Private Sector
Public Sector
Business
Retired Person
Others (Self emp)
Total
<5000
5000-10000
10000-15000
15000-20000
20000-30000
>300000
Total
<50000
50000-100000
100000-200000
200000-300000
Total
No of
respondents
41
9
50
8
11
24
3
4
50
8
17
20
5
50
4
18
3
1
5
19
50
0
1
7
19
15
8
50
26
17
14
3
50
%age
82
18
100
16
22
48
6
8
100
16
34
40
10
100
8
36
6
2
10
38
100
0
2
14
38
30
16
100
52
34
28
6
100
60
100%
90%
%age od respondents
80%
70%
60%
50%
40%
82%
30%
20%
10%
18%
0%
Male
Gender
Female
61
60%
%age of respondents
50%
40%
30%
20%
10%
0%
<25
26-35
36-50
51-60
>61
Age
62
50%
% age of respondents
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Under
Graduate
Graduate
Post
Gratuate
Others
Education level
63
45%
%age of respondents
40%
35%
30%
25%
20%
38%
36%
15%
10%
5%
8%
2%
G
ov
tS
er
vi
Pr
ce
iv
at
e
Se
ct
Pu
or
bl
ic
Se
ct
or
B
us
in
R
es
et
ire
s
d
Pe
O
th
rs
er
on
s(
Se
lf
em
p)
0%
6%
10%
Occupation
64
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
38%
30%
16%
14%
00
00
>3
20
00
0-
30
00
0
00
20
015
00
0-
15
00
00
00
10
50
00
-1
00
00
<5
2%
0%
%age of respondents
Income
65
60%
%age of respondents
50%
40%
30%
20%
10%
0%
<50000
50000100000
100000200000
200000300000
Savings
66
NO OF RESPONDENTS: 50
Particulars
Do investors
prefer to invest in
mutual funds
Description
Yes
No
Cant say
Total
No of
Respondents
25
21
4
50
%age of
Respondents
50%
42%
8%
100%
Data Analysis:
67
8%
42%
50%
Yes
No
Can't say
68
NO OF RESPONDENTS: 50
Particulars
Mutual fund is
fast emerging
investment
alternative
Description
Absolutely Yes
Partially Yes
Cant say
Partially No
Absolutely No
Total
No of
Respondents
7
30
4
2
7
50
%age of
Respondents
14%
60%
8%
4%
14%
100%
Data analysis:
Do investors think mutual fund is fast emerging alternative instrument?
60% of respondents felt partially yes
14% of respondents felt absolutely yes
of respondents felt cant say
8%
14% of the respondents felt absolutely no
69
14%
14%
4%
8%
60%
Absolutely yes
Partially yes
Can't say
Partially No
Absolutely No
70
Tenure
No of respondents
%age of respondents
17
13
13
7
50
34%
26%
26%
14%
100%
<1 year
1-3 year
3-5 year
>5 year
Total
Interpretation:
There is almost near consistency in the tenure of investment preferred by the
investors, however the most preferred tenure is
1-3 &3-5 years
There is a mixed preference of both short term and long-term investment in risk and
return.
71
40%
%age of respondents
35%
30%
25%
20%
15%
34%
26%
26%
10%
14%
5%
0%
< 1 year
1-3 year
3-5 year
> 5 years
Tenure if Investment
72
Particulars
Investors
Selection of type
Of mutual fund
Investors
selection
Of type
Of mutual fund
Description
Open end
Scheme
Close end
Scheme
No response
Total
Growth
Income
Balanced
Money Market
Tax saving
Others
No response
Total
No of
Respondents
30
%age of
Respondents
60%
10
20%
10
50
20%
100%
9
5
15
1
4
16
50
18%
10%
30%
2%
8%
32%
100%
Data analysis:
Investors selection of type of mutual fund
60% of respondents opted for open-end scheme
20% of respondents opted for close-end scheme
20% did not respond
73
10% of respondents opted for income scheme
Interpretation:
Majority of the respondents pre ferred balanced scheme 32% of the respondents not
responding implies that either they are ignorant of mutual fund or they are not
interested in them.
74
20%
20%
60%
open end
scheme
close end
scheme
No response
75
35%
30%
25%
20%
15%
32%
30%
10%
18%
10%
on
he
re
No
ce
Mo
d
ne
yM
ar
ke
t
Ta
xS
av
ing
lan
Ba
Inc
om
e
th
ow
Gr
rs
2%
0%
se
8%
sp
5%
Ot
%age of respondents
40%
Types of schemes
76
Objective
High
Returns
Tax Saving
Safety
Liquidity
Most
Important
27
Partially
Important
19
Not
Important
3
20
29
22
28
18
14
1
1
12
Interpretation:
The investment objectives of the respondents were almost consistent. Even though
there were 22 respondents who aspired for high liquidity 12 did not give any
importance.
54% of the respondents gave the importance to high returns
40% to Tax Savings
58% to safety
44% to liquidity
77
Having
heard of
(in no)
30
34
25
37
27
23
32
22
24
38
%age of
Having
respondents Invested
in (in no)
60%
9
64%
4
50%
5
74%
7
54%
3
46%
3
64%
2
44%
48%
76%
5
%age of
respondents
18%
8%
10%
14%
6%
6%
4%
10%
Findings:
Some of the respondents replied that they had earlier invested in mutual fund
but got burnt their finger by receiving very low returns and also the NAV
falling very low.
Come of them were interested in investing but were unaware of the route
through which the investment could be done.
Few of them even didnt know that a mutual fund was one of the investment
instruments.
One of the opinions of the respondents was that mutual fund were for
employed ones and not for businessmen. Businessmen expect return of 100%
or more and not less that that.
78
90%
%age of respondents
80%
70%
60%
50%
40%
30% 60% 64%
20%
76%
74%
50%
54%
64%
44% 48%
46%
10%
UT
I
dl
ey
s
HD
FC
in
Gr
Al
lia
nc
e
Bi
r
Ko la
Pr tha
ri
ud
e
Te n t i
a
m
pl l
et
on
Zu
S u ric
nd h
ar
am
0%
Mutual Fund
79
%age of respondents
25%
20%
15%
10%
18%
14%
5%
8%
10%
10%
6% 6%
4%
0
rin
UT
I
dl
ay
Zu s
ric
h
Al
lia
nc
e
Bi
Pi rla
o
Pr n e
ud e r
Te e n t i
a
m
pl l
et
on
H
Su DF
nd C
ar
am
0%
Respondents invested
80
No of respondents
5
8
30
5
%age of respondents
10%
16%
64%
10%
Interpretation:
64% of 50 respondents expected a rate of return, which was between 0% to 15%.
81
%age of respondents
80%
70%
60%
50%
40%
64%
30%
20%
10%
0%
10%
0-7%
16%
7-10%
10%
10-15%
>15%
82
No of respondents
%age of respondents
22
7
27
13
44%
14%
54%
26%
17
7
1
34%
14%
2%
12%
Findings:
Respondents felt sliding sensex, unassured profit and the greater amount of
chances to incur loss were the reasons, which detracted them from investing in
mutual fund.
Respondents even felt the mutual fund companies were very careless in
utilizing the funds mobilized by them for further investment.
The majority of investors felt that poor past performance and failure of mutual
fund were the reasons for failing preference of mutual funds as an investment
alternative.
83
%age of respondents
60%
50%
40%
30%
54%
20% 44%
10%
14%
26%
14% 14%
of
MF
sa
fer
inv
es
tm
La
Pr
en
ck
ior
t
of
ity
tra
of
sp
co
Co
ar
ns
en
ns
um
cy
er
va
pt
tiv
ion
ei
to
nv
sa
es
vin
to
r
g&
inv
es
tm
en
pr
t
ior
ity
to
sa
fet
y
re
ilu
Fa
lb
na
tio
Ra
2%
Av
ail
ab
ilit
yo
f lu
cr
ati
ve
&
Ina
de
qu
ate
inf
or
eh
av
ma
tio
iou
0%
12%
Attribution
84
Description
Greater
Transparency
Investors
Education
Prudent
management
Strict guideline
from SEBI
Revival of
Economy
Greater safety of
capital
No of
respondents
40
%age of
respondents
80%
30
60%
23
46%
24
48%
17
34%
30
60%
Findings:
Investors expressed that assured returns and greater safety were the ones most
preferred for any investment.
They also felt that the returns given by mutual fund must be at least equal to
or greater than what is given by banks.
85
No of respondents
38
25
22
45
24
43
%age of respondents
76%
50%
44%
90%
48%
86%
Interpretation
From the data analysis it was found that majority of the respondents opted the
following investment avenues for the following corresponding objective
Insurance Policies
Tax savings
Mutual Fund
High returns
High returns
86
100%
90%
80%
90%
76%
50%
20%
10%
0%
es
sc
en
e
sa
vi
ng
de
b
of
fic
Po
st
Sh
ar
es
an
d
d
fix
e
he
m
tu
re
s
ts
de
po
si
un
d
m
es
lF
Ba
nk
tS
av
i
ng
sc
he
po
lic
ce
26%
Go
v
ur
an
In
s
48%
44%
M
ut
ua
70%
60%
50%
40%
30%
ie
s
%age of respondents
NO OF RESPONDENTS: 50
Investors preference
87
Testing of hypothesis
RESEARCH OBJECTIVE
To know whether more than 50% of respondents would like to invest in mutual fund.
H0: 50% or less is interested in mutual fund investment.
HA: more than 50% are interested in mutual fund investment.
88
89
investment from Bank deposits, post office deposits, shares and debentures
and unit of Mutual fund.
2. Investors importance to safety compared to the returns of their investme nt
remains the same till date.
3. Further it was also found that investors do not take any tension or headache in
acquiring investment and receiving income from it.
90
7. Moreover it was also found that investors belonging to the age group 25-50
were the ones most interested and enthusiastic in investing in Mutual Fund.
Retired people were totally against investing in Mutual Fund. Retired people
were totally against investing Mutual Fund. They gave more importance to
Safety.
moreover it was also found that investors belonging to the age group 25-50
were the ones most interested and enthusiastic in investing in Mutual Fund.
Retired people were totally against investing in Mutual Fund. They gave
more importance to safety. Their most proffered investment avenue were post
office and bank deposits. They expressed their satisfaction with the percent of
interest provided by these avenues. They told that they were not greedy and
security was given the most importance, preceded by liquidity. More over
they also expressed that there was no more confidence on Mutual Fund.
91
SUGGESTIONS:
1. If professional Management cannot guarantee controlled risk
adjustment, then a lot of new investment will flow directly into the
market. That is precisely why the inflows directly into the market.
That is precisely why the inflows into Mutual Fund might slow down.
Stock market analysts also argue that with new products like Index
funds and derivatives, the options before a retail investor have
enlarged. As Forbes in its Mutual Fund survey stated red-hot fund
performer can bullish and bearish markets are the ones to chase.
Hence endurance and consistency should be the order of the day.
2. There should be greater transparency and disclosure in valuation
practices, for this is a burning issue on risk positioning & should be
made evident to the investors. The investor expects and has a right to
know where his money is invested.
3. Distribution must appear for Association of Mutual Fund Certification
courses, as advisors will drive the Mutual Fund business in the long
run.
4. Mutual Fund in India has been promoted as an alternate to equity
investing, thus creating a very high expectation among investors.
Further there is also aggressive selling by untrained agents and
financial Advisors leaving Mutual Fund unable to offer high-expected
return and thus driving away many first time investors. Hence Mutual
Fund should be treated as a separate investment opportunity available
in itself. A proper training must also be provided to agents, Financial
Advisors and Distributors.
92
intrinsic value rather than erratic huge returns and complete loss at
other time.
8. Just like what is practiced in LIC companies, Mutual Fund may try
having its agents to spread the knowledge of Mutual Fund and to get
the required investment from the general public.
93
CONCLUSION:
Indian Mutual Fund industry has seen a lot of ups and down in history. In spite of
that it has been able to successfully assist efficient resource allocation, provide strong
support to capital market and help investors to realize the benefits of stock market
investing.
The growing importance of Indian Mutual Fund in the market place may be noticed in
terms of increased mobilization of funds and growing number of investors accounts
with Indian Mutual Funds. This could be further improved by providing suitable
investor education regarding the Mutual Fund schemes its relative benefits compared
to other investment avenues. Requisite training should also be given to financial
Advisors, Mutual Fund Investment Avenue.
Taking into considerations the study on Mutual Fund in India can easily confirm that
Mutual Fund is one of the best investment plans available to investors, which not only
give fixed income or return but also capital appreciation, if managed properly. This is
far more superior to other investment companies, like erratic NBFCs, oscillating
share market and low return provided by Banks, post office and other Government
Securities.
94
Customers
95
BIBLIOGRAPHY
Prasanna Chandra
Hill
Financial management
TATA Mc Graw
Himalaya publication
Philip kotlar
Marketing Management
Newspapers
Economic Times
Business standard
Magazine
Capital Market
Fund manager
Website
mutualfundsindia.com
moneycontrol.com
amfi.com
96
QUESTIONNAIRE
GENDER:
MALE
FEMALE
Q EDUCATIONAL QUALIFICATION:
UNDER GRADUATE
GRADUATE
POST GRADUATE
OTHERS (PLEASE SPECIFY)
Q OCCUPATION:
SALARIED
SELF-EMPLOYED
RETIRED
Q IF
EMPLOYED
YOUR FIRM IS
PRIVATE SECTOR
MNC
PUBLIC SECTOR
GOVT. SECTOR
OTHERS
PROFESSION:
LAWYER
DOCTOR
ENGINEER
INFOTECH
97
5000-10000
15000-20000
>30000
50000-100000
200000-300000
Q INVESTMENT OBJECTIVE
YOUR INVESTMENT OBJECTIVE:
EXTENT OF IMPORTANCE
EXPECTATION
PARTIALLY
NO
NOT
YES
TAX SAVING
SAFETY
LIQUIDITY
OTHERS (SPECIFY)
WHICH OF THE FOLLOWING INVESTMENT TYPES DO YOU FAMILY HOLD? AND TICK THE
OBJECTIVE BEHIND
SUCH AN INVESTMENT?
INVESTMENT
SAVING
SAFETY
HIGH
RATE
OF
LIQUIDITY
OTHERS
(SPECIFY)
RETURN
I INSURANCE POLICIES
GOVT.SAVING
SCHEMES
MUTUAL FUNDS
BANK F D
REAL ESTATE
GOLD
SHARES
DEBENTURES
OTHERS (SPECIFY)
TAX
&
Q WHAT IS YOUR INVESTMENT TIME FRAME I.E., FOR HOW LONG YOU SET ASIDE YOUR
FUNDS?
LESS THAN A YEAR
1YEAR TO 3YEARS
3YEARS TO 5YEARS
MORE THAN 5 YEARS
98
Q WHICH OF THE FOLLOWING STATEMENT BEST DESCRIBES YOUR REACTION TO A FALL IN VALUE
OF YOUR INVESTMENT
NAMES
HAVE HEARD
OF
1
2
3
4
5
6
(Y OR N)
INVESTED IN
(Y OR N)
RATING
(RETURN)
99
7
8
9
10
INADEQUATE INFORMATION
RATIONAL BEHAVIOR
FAILURE OF MUTUAL FUND
AVAILABILITY OF OTHER LUCRATIVE AND SAFER INVESTMENT
LACK OF TRANSPARENCY
CONSERVATIVE INVESTOR
PRIORITY OF CONSUMPTION TO SAVING AND INVESTMENT
PRIORITY TO SAFETY
Q
DID YOU KNOW THAT WAY TO WEALTH IS AN ADVISOR AND DISTRIBUTOR IN ALL THE
MENTIONED MUTUAL FUND
YES
NO
100