ACKNOWLEDGEMENT

The project Student Borrowers Attitude towards Study Loans for Professional
Courses will be incomplete without paying gratitude and reverence to those who had
helped in shaping of this work.
I will give my deep devoted reverence and sincere thanks to Ms Rajinder Kaur as she
helps me, to find the topic in fact acted as a source to give, project a reality. I feel
without her, this project would have remained a dream. I thank her for valuable
guidance.
I would like to extend my gratitude to Ms. Rajinder Kaur and other staff members of
Malout institute of Management and Technology (MIMIT) for their whole hearted cooperation and assistance which was eternally essential for the completion of this
project.

Page 1

HISTORY AND STRUCTURE OF 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. It was set up by the
Reserve Bank of India and functioned under the Regulatory and administrative control of the
Reserve Bank of India. In 1978 UTI was de-linked from the RBI and 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.

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

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund
industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in
which the first Mutual Fund Regulations came into being, 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. The number of mutual fund houses went on increasing, with many foreign
mutual funds setting up funds in India and also the industry has witnessed several mergers and
acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs.
1, 21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under management
was way ahead of other mutual funds.
Fourth Phase since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated
into two separate entities. One is the Specified Undertaking of the Unit Trust 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 Specified
Undertaking of Unit Trust of India, functioning under an administrator and under the rules
framed by Government of India and does not come under the purview of the Mutual Fund
Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It
is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation
of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of assets under
management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual
Fund Regulations, and with recent mergers taking place among different private sector funds,
Page 3

the mutual fund industry has entered its current phase of consolidation and growth. As at the
end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under
421 schemes.

Page 4

INTRODUCTION TO MUTUAL FUND

Mutual funds are financial intermediaries, which collect the savings of investors and invest
them in a large and well-diversified portfolio of securities such as money market instruments,
corporate and government bonds and equity shares of joint stock companies. A mutual fund is a
pool of common funds invested by different investors, who have no contact with each other.
Mutual funds are conceived as institutions for providing small investors with avenues of
investments in the capital market. Since small investors generally do not have adequate time,
knowledge, experience and resources for directly accessing the capital market, they have to rely
on an intermediary, which undertakes informed investment decisions and provides
consequential benefits of professional expertise. The raison dtre of mutual funds is their
ability to bring down the transaction costs. The advantages for the investors are reduction in
risk, expert professional management, diversified portfolios, and liquidity of investment and tax
benefits. By pooling their assets through mutual funds, investors achieve economies of scale.
The interests of the investors are protected by the SEBI, which acts as a watchdog. Mutual
funds are governed by the SEBI (Mutual Funds) Regulations, 1993.

Page 5

CONCEPT OF MUTUAL FUND

A mutual fund is a professionally managed, collective investment scheme that pools money
from many investors and invests typically in investment securities.
Mutual fund is a trust that manages the pool of money collected from various investors and it is
managed by a team of professional fund managers.
The money thus collected is invested in accordance with the stated investment objectives in
stocks, bonds, short-term money market instruments, other mutual funds, other securities,
and/or commodities such as precious metals.
Mutual Fund companies are known as Asset Management Companies (AMC). They offer a
variety of diversified schemes. They pool the savings of investors and invest them in a welldiversified portfolio of sound investments.
The income earned through these investments and the capital appreciation realised are shared
by its unit holders in proportion to the number of units owned by them.
The current value of such investments is calculated on daily basis and the same is reflected in
the Net Asset Value (NAV) declared by the funds from time to time. This NAV keeps on
changing with the changes in the equity and bond market.

Therefore, the investments in

Mutual Funds is not risk free, but a good managed Fund can give you regular and higher returns
than when you can get from fixed deposits of a bank etc.
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.

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Page 7

MUTUAL FUND OPERATIONS FLOW CHART

The flow chart below describes broadly the working of a Mutual Fund:

Investor pool in their money and invests in Mutual Fund. The Mutual Fund Manager invests the
so collected money in various securities in accordance with the investment objective of the
fund. Any Capital gains & losses from such investments are passed on to the investors in
proportion of the number of units held by them.

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THE GOAL OF MUTUAL FUND

The goal of a mutual fund is to provide an individual to make money. There are several
thousand mutual funds with different investments strategies and goals to chosen from. Choosing
one can be over whelming, even though it need not be different mutual funds have different
risks, which differ because of the funds goals fund manager, and investment style.

The fund itself will still increase in value, and in that way you may also make money therefore
the value of shares you hold in mutual fund will increase in value when the holdings increases
in value capital gains and income or dividend payments are best reinvested for younger
investors Retires often seek the income from dividend distribution to augment their income with
reinvestment of dividends and capital distribution your money increase at an even greater rate.
When you redeem your shares what you receive is the value of the share.

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ORGANISATION OF MUTUAL FUND

Unit Holders
They are the parties to whom the mutual fund is sold. They are ultimate beneficiary of the
income earned by the mutual funds.
SEBI
The regulation of mutual funds operating in India falls under the preview of authority of the
Securities and Exchange Board of India (SEBI). Any person proposing to set up a mutual
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fund in India is required under the SEBI (Mutual Funds) Regulations, 1996 to be registered with
the SEBI.
Sponsor
The sponsor should contribute at least 40% to the net worth of the AMC. However, if any
person holds 40% or more of the net worth of an AMC shall be deemed to be a sponsor and will
be required to fulfill the eligibility criteria in the Mutual Fund Regulations. The Sponsor is not
responsible or liable for any loss or shortfall resulting from the operation of the Schemes
beyond the initial contribution made by it towards setting up of the Mutual Fund.
Trustee
The mutual fund is required to have an independent Board of Trustees, i.e. two third of the
trustees should be independent persons who are not associated with the sponsors in any manner.
An AMC or any of its officers or employees are not eligible to act as a trustee of any mutual
fund. The trustees are responsible for - inter alia ensuring that the AMC has all its systems in
place, all key personnel, auditors, registrar etc. have been appointed prior to the launch of any
scheme.
Transfer Agent
The transfer agent is contracted by the AMC and is responsible for maintaining the register of
investors / unit holders and every day settlements of purchases and redemption of units. The
role of a transfer agent is to collect data from distributors relating to daily purchases and
redemption of units. The Registrar and Transfer agent also handles communications with
investors and updates investor records.

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Custodian
The mutual fund is required, under the Mutual Fund Regulations, to appoint a custodian to carry
out the custodial services for the schemes of the fund. Only institutions with substantial
organizational strength, service capability in terms of computerization and other infrastructure
facilities are approved to act as custodians. The custodian must be totally delinked from the
AMC and must be registered with SEBI. This structure mitigates the risk of dishonest activity
by separating the fund managers from the physical securities and investor records.
Asset Management Company (AMC)
The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. An Asset
Management Company (AMC) is an investment management firm that invests the pooled
funds of investors in securities in line with the stated investment objectives.
The diversification of portfolio is done by investing in such securities which are inversely
correlated to each other. They collect money from investors by way of floating various mutual
fund schemes.
At least 50% of the directors of the AMC are independent directors who are not associated with
the Sponsor in any manner. The AMC must have a net worth of at least 10 crores at all times.
The chairman of the AMC is not a trustee of any mutual fund.

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CHARACTERISTICS OF A MUTUAL FUND

Some of the traditional & distinguishing characteristics of mutual funds are given below:
The investors share in the fund is denoted by units. The value of the units changes
every day with change in the portfolios value. The value of one unit of investment is
called as the Net Asset Value or NAV.
The pool of funds is invested in a portfolio of marketable investments. The value of
the portfolio is updated every day.
The investment portfolio of the mutual fund is created according to the stated
investment objectives of the fund.
Mutual fund units are redeemable. This means that when mutual fund investors
want to sell their fund units, they sell them back to the fund or to broker acting for the
fund at their Net Asset Value (NAV).
Investors purchase mutual fund units from the fund itself or through a broker for the
fund, but are not able to purchase the units from other investors on a secondary
market, such as the Bombay Stock Exchange (BSE) or National Stock Exchange
(NSE).

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ADVANTAGES OF MUTUAL FUND TO THE INVESTORS

Every investment tool has some advantages and disadvantages. But it's important to remember
that features and benefits that matter to one investor may not be important to you. Whether any
particular feature is an advantage for you will depend on your unique circumstances, risk profile
and investment objectives. For some investors, mutual funds provide an attractive investment
choice because they generally offer the following benefits:

Professional Management: The primary advantage of funds is the professional

management of your money. Investors purchase mutual funds because they do not have the time
or the expertise to manage their own portfolio. A mutual fund is a relatively inexpensive way
for a small investor to get a full-time manager to make and monitor investments.

Portfolio Diversification: A proven principle of sound investment is that of

diversification. By investing in many companies, the mutual funds protect themselves from
drop in value of shares. Majority of people consider diversification as the major strength of
mutual funds.

Reduction of Risk: Risk in investment is as to recovery of the principal amount and as to

return on it. Mutual funds, on both fronts provide a comfortable situation for investors. The
expert supervision, diversification, and liquidity of units ensured in mutual funds minimize the
risks.

Economies of Scale: Mutual funds having large funds at their disposal avail economies

of scale. The brokerage fee or trading commission may be reduced substantially. The reduced
transaction costs obviously increases the income available for investors.

Liquidity: A distinct advantage of mutual fund over other investments is that, there is

always a market for its units/shares. Moreover, Securities & Exchange Board of India requires
that mutual funds in India have to ensure liquidity.

Page 14

Choice: Mutual funds come in a wide variety of types. Some mutual funds invest

exclusively in a particular sector (e.g. energy funds), while others might target growth
opportunities in general. There are thousands of funds, and each has its own objectives and
focus. The key is for you to find the mutual funds that most closely match your own particular
investment objectives

Convenience: When you own a mutual fund, you don't need to worry about tracking the

dozens of different securities in which the fund invests; rather, all you need to do is to keep
track of the fund's performance.

Tax Shelter: Depending on the schemes of mutual funds, tax shelter is also available

under section 80C. The returns from the mutual funds are also eligible for favorable tax
treatment.

Systematic investment plans: A specific amount is invested for a continuous

period at regular intervals under this plan. The investor decides the amount and also the mutual
fund scheme. The amount to be invested could be as low as Rs. 500 per month.

DISADVANTAGES OF MUTUAL FUND TO THE INVESTORS

No Insurance: Mutual funds, although regulated by the government are not insured

against losses. That means that despite the risk-reducing diversification benefits provided by
mutual funds, losses can occur, and it is possible (although extremely unlikely) that you could
even lose your entire investment.

Dilution: Although diversification reduces the amount of risk involved in investing in

mutual funds, it can also be a disadvantage due to dilution. For example, if a single security
held by a mutual fund doubles in value, the mutual fund itself would not double in value
because that security is only one small part of the fund's holdings. By holding a large number of
different investments, mutual funds tend to do neither exceptionally well nor exceptionally
poorly.
Page 15

Inefficiency of Cash Reserves: Mutual funds usually maintain large cash

reserves as protection against a large number of simultaneous withdrawals. Although this

provides investors with liquidity, it means that some of the fund's money is invested in cash
instead of assets, which tends to lower the investor's potential return.

Trading Limitations: Although mutual funds are highly liquid in general, most mutual

funds cannot be bought or sold in the middle of the trading day. You can only buy and sell them
at the end of the day, after they've calculated the current value of their holdings.

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CLASSIFICATION OF MUTUAL FUND SCHEMES

Any mutual fund has an objective of earning income for the investors and/ or getting increased
value of their investments. To achieve these objectives mutual funds adopt different strategies
and accordingly offer different schemes of investments. On this basis the simplest way to
categorize schemes would be to group these into two broad classifications:
OPERATIONAL CLASSIFICATION AND PORTFOLIO CLASSIFICATION.
Operational classification highlights the two main types of schemes, i.e., open-ended and
close-ended which are offered by the mutual funds.
Portfolio classification projects the combination of investment instruments and investment
avenues available to mutual funds to manage their funds. Any portfolio scheme can be either
open ended or close ended.
Operational Classification:
(A) Open Ended Schemes: As the name implies the size of the scheme (Fund) is open i.e.,
not specified or pre-determined. Entry to the fund is always open to the investor who can
subscribe at any time. Such fund stands ready to buy or sell its securities at any time. It implies
that the capitalization of the fund is constantly changing as investors sell or buy their shares.
Further, the shares or units are normally not traded on the stock exchange but are repurchased
by the fund at announced rates. Open-ended schemes have comparatively better liquidity
despite the fact that these are not listed. The reason is that investors can any time approach
mutual fund for sale of such units. No intermediaries are required. Moreover, the realizable
amount is certain since repurchase is at a price based on declared net asset value (NAV). No
minute to minute fluctuations in rates haunt the investors. The portfolio mix of such schemes
has to be investments, which are actively traded in the market. Otherwise, it will not be possible
to calculate NAV. This is the reason that generally open-ended schemes are equity based.
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Moreover, desiring frequently traded securities, open-ended schemes hardly have in their
portfolio shares of comparatively new and smaller companies since these are not generally
traded. In such funds, option to reinvest its dividend is also available. Since there is always a
possibility of withdrawals, the management of such funds becomes more tedious as managers
have to work from crisis to crisis. Crisis may be on two fronts, one is, that unexpected
withdrawals require funds to maintain a high level of cash available every time implying
thereby idle cash. Fund managers have to face questions like what to sell. He could very well
have to sell his most liquid assets. Second, by virtue of this situation such funds may fail to grab
favourable opportunities. Further, to match quick cash payments, funds cannot have matching
realization from their portfolio due to intricacies of the stock market. Thus, success of the openended schemes to a great extent depends on the efficiency of the capital market and the
selection and quality of the portfolio.
(B) Close Ended Schemes: Such schemes have a definite period after which their shares/ units
are redeemed. Unlike open-ended funds, these funds have fixed capitalization, i.e., their corpus
normally does not change throughout its life period. Close ended fund units trade among the
investors in the secondary market since these are to be quoted on the stock exchanges. Their
price is determined on the basis of demand and supply in the market. Their liquidity depends on
the efficiency and understanding of the engaged broker. Their price is free to deviate from NAV,
i.e., there is every possibility that the market price may be above or below its NAV. If one takes
into account the issue expenses, conceptually close ended fund units cannot be traded at a
premium or over NAV because the price of a package of investments, i.e., cannot exceed the
sum of the prices of the investments constituting the package. Whatever premium exists that
may exist only on account of speculative activities. In India as per SEBI (MF) Regulations
every mutual fund is free to launch any or both types of schemes.

Page 18

Portfolio Classification of Funds:

Following are the portfolio classification of funds, which may be offered. This classification
may be on the basis of (A) Return, (B) Investment Pattern, (C) Specialised sector of investment,
(D) Leverage and (E) Others.
(A) Return based classification:
To meet the diversified needs of the investors, the mutual fund schemes are made to enjoy a
good return. Returns expected are in form of regular dividends or capital appreciation or a
combination of these two.
1. Income Funds: For investors who are more curious for returns, Income funds are floated.
Their objective is to maximize current income. Such funds distribute periodically the income
earned by them. These funds can further be spitted up into categories: those that stress constant
income at relatively low risk and those that attempt to achieve maximum income possible, even
with the use of leverage. Obviously, the higher the expected returns, the higher the potential risk
of the investment.
2. Growth Funds: Such funds aim to achieve increase in the value of the underlying
investments through capital appreciation. Such funds invest in growth oriented securities which
can appreciate through the expansion production facilities in long run. An investor who selects
such funds should be able to assume a higher than normal degree of risk.
3. Conservative Funds: The fund with a philosophy of all things to all issue offer document
announcing objectives as: (i) To provide a reasonable rate of return, (ii) To protect the value of
investment and, (iii) To achieve capital appreciation consistent with the fulfillment of the first
two objectives. Such funds which offer a blend of immediate average return and reasonable
capital appreciation are known as middle of the road funds. Such funds divide their portfolio

Page 19

in common stocks and bonds in a way to achieve the desired objectives. Such funds have been
most popular and appeal to the investors who want both growth and income.
(B) Investment Based Classification:
Mutual funds may also be classified on the basis of securities in which they invest. Basically, it
is renaming the subcategories of return based classification.
1. Equity Fund: Such funds, as the name implies, invest most of their investible shares in
equity shares of companies and undertake the risk associated with the investment in equity
shares. Such funds are clearly expected to outdo other funds in rising market, because these
have almost all their capital in equity. Equity funds again can be of different categories varying
from those that invest exclusively in high quality blue chip companies to those that invest
solely in the new, unestablished companies. The strength of these funds is the expected capital
appreciation. Naturally, they have a higher degree of risk.
2. Bond Funds: such funds have their portfolio consisted of bonds, debentures, etc. this type of
fund is expected to be very secure with a steady income and little or no chance of capital
appreciation. Obviously risk is low in such funds. In this category we may come across the
funds called Liquid Funds which specialize in investing short-term money market instruments.
The emphasis is on liquidity and is associated with lower risks and low returns.
3. Balanced Fund: The funds, which have in their portfolio a reasonable mix of equity and
bonds, are known as balanced funds. Such funds will put more emphasis on equity share
investments when the outlook is bright and will tend to switch to debentures when the future is
expected to be poor for shares.
(C) Sector Based Funds:
There are number of funds that invest in a specified sector of economy. While such funds
do have the disadvantage of low diversification by putting all their all eggs in one basket,
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the policy of specializing has the advantage of developing in the fund managers an
intensive knowledge of the specific sector in which they are investing. Sector based funds
are aggressive growth funds which make investments on the basis of assessed bright
future for a particular sector. These funds are characterized by high viability, hence more
risky.

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WHY MUTUAL FUNDS?

Mutual Funds are becoming a very popular form of investment characterized by many
advantages that they share with other forms of investments and what they possess uniquely
themselves. The primary objectives of an investment proposal would fit into one or combination
of the two broad categories, i.e., Income and Capital gains. How mutual fund is expected to be
over and above an individual in achieving the two said objectives, is what attracts investors to
opt for mutual funds. Mutual fund route offers several important advantages.
Diversification: A proven principle of sound investment is that of diversification, which is the
idea of not putting all your eggs in one basket. By investing in many companies the mutual
funds can protect themselves from unexpected drop in values of some shares. The small
investors can achieve wide diversification on his own because of many reasons, mainly funds at
his disposal. Mutual funds on the other hand, pool funds of lakhs of investors and thus can
participate in a large basket of shares of many different companies. Majority of people consider
diversification as the major strength of mutual funds.
Expertise Supervision: Making investments is not a full time assignment of investors. So they
hardly have a professional attitude towards their investment. When investors buy mutual fund
scheme, an essential benefit one acquires is expert management of the money he puts in the
fund. The professional fund managers who supervise funds portfolio take desirable decisions
viz., what scrips are to be bought, what investments are to be sold and more appropriate
decision as to timings of such buy and sell. They have extensive research facilities at their
disposal, can spend full time to investigate and can give the fund a constant supervision. The
performance of mutual fund schemes, of course, depends on the quality of fund managers
employed.

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A.

Liquidity of Investment: A distinct advantage of a mutual fund over other

investments is that there is always a market for its unit/ shares. Moreover, Securities and
Exchange Board of India (SEBI) requires the mutual funds in India have to ensure liquidity.
Mutual funds units can either be sold in the share market as SEBI has made it obligatory for
closed-ended schemes to list themselves on stock exchanges. For open-ended schemes investors
can always approach the fund for repurchase at net asset value (NAV) of the scheme. Such
repurchase price and NAV is advertised in newspaper for the convenience of investors.
B.

Reduced risks: Risk in investment is as to recovery of the principal amount and as

to return on it. Mutual fund investments on both fronts provide a comfortable situation for
investors. The expert supervision, diversification and liquidity of units ensured in mutual funds
reduces the risks. Investors are no longer expected to come to grief by falling prey to
misleading and motivating headline leads and tips, if they invest in mutual funds.
C.

Safety of Investment: Besides depending on the expert supervision of fund

managers, the legislation in a country (like SEBI in India) also provides for the safety of
investments. Mutual funds have to broadly follow the laid down provisions for their regulations,
SEBI acts as a watchdog and attempts whole heatedly to safeguard investors interests.
D.

Tax Shelter: Depending on the scheme of mutual funds, tax shelter is also available.

As per the Union Budget-2003, income earned through dividends from mutual funds is 100%
tax-free at the hands of the investors.
E.

Minimize Operating Costs: Mutual funds having large invisible funds at their

disposal avail economies of scale. The brokerage fee or trading commission may be reduced
substantially. The reduced operating costs obviously increase the income available for investors.
Investing in securities through mutual funds has many advantages like option to reinvest
dividends, strong possibility of capital appreciation, regular returns, etc. Mutual funds are also
relevant in national interest. The test of their economic efficiency as financial intermediary lies
Page 23

in the extent to which they are able to mobilize additional savings and channeling to more
productive sectors of the economy.

MUTUAL FUNDS FOR WHOM?

Page 24

These funds can survive and thrive only if they can live up to the hopes and trusts of their
individual members. These hopes and trusts echo the peculiarities which support the emergence
and growth of such insecurity of such investors who come to the rescue of such investors who
face following constraints while making direct investments:
(a)

Limited resources in the hands of investors quite often take them away from stock market

transactions.
(b)

Lack of funds forbids investors to have a balanced and diversified portfolio.

(c)

Lack of professional knowledge associated with investment business unable investors to

operate gainfully in the market. Small investors can hardly afford to have ex-pensive investment
consultations.
(d)

To buy shares, investors have to engage share brokers who are the members of stock

exchange and have to pay their brokerage.

(e)

They hardly have access to price sensitive information in time.

(f)

It is difficult for them to know the development taking place in share market and

corporate sector.
(g)

Firm allotments are not possible for small investors on when there is a trend of over

subscription to public issues.

MARKETING STRATEGIES ADOPTED BY THE MUTUAL FUNDS

Page 25

The present marketing strategies of mutual funds can be divided into two main headings:
Direct marketing
Selling through intermediaries.
Joint Calls
Direct Marketing:
This constitutes 20 percent of the total sales of mutual funds. Some of the important tools used
in this type of selling are:
Personal Selling: In this case the customer support officer or Relationship Manager of the fund
at a particular branch takes appointment from the potential prospect. Once the appointment is
fixed, the branch officer also called Business Development Associate (BDA) in some funds then
meets the prospect and gives him all details about the various schemes being offered by his
fund. The conversion rate in this mode of selling is in between 30% - 40%.
Telemarketing: In this case the emphasis is to inform the people about the fund. The names and
phone numbers of the people are picked at random from telephone directory. Some fund houses
have their database of investors and they cross sell their other products. Sometimes people
belonging to a particular profession are also contacted through phone and are then informed
about the fund. Generally the conversion rate in this form of marketing is 15% - 20%.
Direct mail: This one of the most common method followed by all mutual funds. Addresses of
people are picked at random from telephone directory, business directory, professional directory
etc. The customer support officer (CSO) then mails the literature of the schemes offered by the
fund. The follow up starts after 3 4 days of mailing the literature. The CSO calls on the people
to whom the literature was mailed. Answers their queries and is generally successful in taking

Page 26

appointments with those people. It is then the job of BDA to try his best to convert that prospect
into a customer.
Advertisements in newspapers and magazines: The funds regularly advertise in business
newspapers and magazines besides in leading national dailies. The purpose to keep investors
aware about the schemes offered by the fund and their performance in recent past.
Advertisement in TV/FM Channel: The funds are aggressively giving their advertisements in
TV and FM Channels to promote their funds.
Hoardings and Banners: In this case the hoardings and banners of the fund are put at important
locations of the city where the movement of the people is very high. The hoarding and banner
generally contains information either about one particular scheme or brief information about all
schemes of fund.
Selling through intermediaries:
Intermediaries contribute towards 80% of the total sales of mutual funds. These are the people/
distributors who are in direct touch with the investors. They perform an important role in
attracting new customers. Most of these intermediaries are also involved in selling shares and
other investment instruments. They do a commendable job in convincing investors to invest in
mutual funds. A lot depends on the after sale services offered by the intermediary to the
customer. Customers prefer to work with those intermediaries who give them right information
about the fund and keep them abreast with the latest changes taking place in the market
especially if they have any bearing on the fund in which they have invested.
Regular Meetings with distributors: Most of the funds conduct monthly/bi-monthly meetings
with their distributors. The objective is to hear their complaints regarding service aspects from
funds side and other queries related to the market situation. Sometimes, special training
programmes are also conducted for the new agents/ distributors. Training involves giving

Page 27

details about the products of the fund, their present performance in the market, what the
competitors are doing and what they can do to increase the sales of the fund.
Joint Calls:
This is generally done when the prospect seems to be a high net worth investor. The BDA and
the agent (who is located close to the HNIs residence or area of operation) together visit the
prospect and brief him about the fund. The conversion rate is very high in this situation,
generally, around 60%. Both the fund and the agent provide even after sale services in this
particular case.
Meetings with HNIs: This is a special feature of all the funds. Whenever a top official visits a
particular branch office, he devotes at least one to two hours in meeting with the HNIs of that
particular area. This generally develops a faith among the HNIs towards the fund.

Page 28

RESEARCH METHODOLOGY

Research Design

Descriptive Research

Research Instrument

Structured, un-disguised

Sample Method

Non-Probability Sampling

Sample Size

100

Sampling Design

Convenient Sampling

Sources of Data

Primary Data

Structured Non-Disguised Questionnaire

Secondary Data

Reference from distributors & banks.

The whole study is based upon primary and secondary data. Therefore, information has been
collected from interacting with different investors and from various magazines, journals,
websites, and bulletins.

SOURCES OF DATA COLLECTION

There are two sources:
1. Primary Sources:Primary data is collected through survey of investors.
2. Secondary Sources:Secondary sources are websites.

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Sample size
The sample for research consisted of 100 respondents who are generally Investors on one
way or the other. The sample size was restricted to 100 because of financial & time
constraint.
Preparation of Questionnaire:The questionnaire was prepared by the researcher himself. The preparation of
questionnaire was done by keeping the objective of study in mind. The researcher took
some help from experts during the framing of questionnaires from various sources. The
preparation of questionnaire took about 4-5 days. The questionnaire used for study was of
closed type since it is free from bias nature of respondents.
We used non-probability type of sampling.
In non-probability sampling, the chance of any particular unit in the population being
selected is unknown. Since randomness is not involved in the selection process, an
estimate of the sampling error cannot be made. But this does not mean that the findings
obtained from non-probability sampling are of questionable value. If properly conducted
their findings can be as accurate as those obtained from probability sampling.

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Page 31

1) Occupation
.

Government Employee

Private Employee

Businessmen

Retired

Interpretation: - There are 76% people who are investing and remaining 24% are not investing
at present. In this 76 people 50% peoples are in government service, 20% in private job & 24%
people are businessmen & 6% are retired.

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2) Age Group
20-40 years

40-60 years

Above 60 years

Interpretation: - There are 46% people in age group 20-40 years and 48% of people in 40-60
years and rest 6% are Above 60 years.

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3) Do you like to investment ?

Yes

No

Interpretation:- When I have analyze the project then I found that in out of total people 24%
people are not investing & 76% people are investing.

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4) Are you satisfied with your investment & return on it?

Yes

No

Interpretation:- In survey 92% of people are satisfied with investment and 8% are not satisfied
with investment.

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5)

What is your investment objective?

Capital Growth

Capital protection

Children Education & Marriage

Retirement
Regular Income

Interpretation:- As we can observe from the above analysis, most of respondents wanted to protect
their invested capital and Capital growth being the secondary investment objective.

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6)

Have you ever invested in Mutual Funds?

Yes

No

Interpretation:- As we can observe from the above analysis, majority of respondents did not
invest in mutual funds.

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7)

How did you come to know about Mutual Funds?

Bank
Agents

Newspaper
Television

Radio
Word of Mouth

Interpretation:- As we can observe from the above analysis, most of the respondents have
heard of mutual funds through Newspapers, Television and through word of mouth.

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8)

Before this survey, how often had you heard of Mutual Funds?
Ive never heard of Mutual Funds before

Ive heard of Mutual Funds frequently

Ive heard of Mutual Funds a few times

Interpretation:- As we can observe from the above analysis, there is no respondent who has not
heard of mutual funds, and majority of respondents said that they have heard of it frequently, so
we can say that people are aware of mutual funds as an investment option.

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9)

For which companys mutual fund or Banks mutual fund you are interested?
UTI
SBI Mutual Fund

Reliance Mutual Fund

ICICI Prudential Mutual Fund

Others

Interpretation:- In this survey 46% people are interest to buy SBI mutual fund and 19% people
to invest in reliance, 16% in ICICI mutual fund and 7% in UTI and 12% interested in investing
in different mutual funds.

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10)

What products/services you are currently using from your bank?

Savings A/C

Current A/C

Mutual Funds

Loans

Life Insurance

Fixed Deposits

Lockers

Interpretation:- As we can observe from the above analysis, all the respondents used Savings
A/C from their bank and Life Insurance & Fixed Deposits being other most used services
availed by most of the respondents.

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11)

In what modes do you invest your money?

Fixed Deposits

Equity

Debt

Life Insurance

Mutual Funds

Gold

Government Bonds

Other

Interpretation:- As we can observe from the above analysis, most of the respondents
preferred to invest in Life Insurance & Fixed Deposits, whereas Government Bonds &
Debt were the least preferred investment options by the respondents.

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12)

How much do you usually invest in Mutual Funds in a year?

Below 10,000

50,000 99,999

10,000 49,999

Above 1,00,000

Interpretation:- As we can observe from the above analysis, most of the respondents who
invested in mutual funds preferred to invest between Rs. 10,000 to Rs. 49,999 and not one of the
respondent invested above Rs. 1,00,000.

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13)

If you do invest in Mutual funds, how do you invest?

Lumpsum Investment
Through systematic investment plans (SIP)
Both lumpsum & systematic investment plans

Interpretation:- As we can observe from the above analysis, most of the respondents who
invested in mutual funds preferred to invest in it through both Lumpsum investment &
Systematic investment plans (SIP).

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14)

What type of risk profile do you belong to?

High Risk taker
Medium Risk taker
Low Risk Taker

Interpretation:- As we can observe from the above analysis, most of the respondents
belonged to the Medium Risk Takers, there were very few High Risk Takers.

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15)

What are your general impressions of Risk associated with Mutual Fund?
High Risk
Average Risk
Low Risk

Interpretation:- As we can observe from the above analysis, most of the respondents perceived
that there is average risk involved with mutual funds.

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16)

What are your general impressions of Returns associated with Mutual Fund?
High returns
Average returns
Low returns

Interpretation:- As we can observe from the above analysis, majority of the respondents
perceived that the returns generated from mutual funds were average.

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17)

Do you think that investment in mutual fund units is safer as compared to other .

financial avenues?
Yes

No

Interpretation:- In Survey 56% investors think that investment is safe and 44% think that it is
not safe.

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FINDINGS
From the above analysis I can conclude the following points:
Mutual Funds are dynamic financial institutions, which play crucial role in
an economy by mobilizing savings and investing them in the capital market.
Mutual funds should be the part of portfolio of every investor as it enables
an investor to diversify into various securities which he may not be able to
otherwise. Mutual Funds is an investment option that reduces investors risk
while providing the investor with an good possibility of making greater
returns than other investment options like Fixed Deposits.
Systematic Investment Plan provided by mutual funds is a great investment
opportunity especially for the retail investor as is a simple and time honored
investment strategy for accumulation of wealth in a disciplined manner over
long term period. SIP enables an investor to overcome the dilemma of when
to enter the market?
We can also conclude from the above analysis that an investor should give
consideration to his risk profile before opting for a particular investment
tool. Age of the investor and risk profile of an investor are inversely related.
Investors above the age of 55 years should normally have 70% of their
investment in debt as it provides them liquidity and capital protection option.
Majority of investors are average risk takers i.e. they want to safeguard their
investment even if they have to tradeoff returns for it, for these types of
investors mutual fund provides a great opportunity to earn good returns
while

reducing

management.

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the

risk

through

diversification

and

professional

RECOMMENDATIONS
1.

Tapping the upcoming market - Semi Urban Market as there is a lot of

opportunity. Most of the Mutual Funds are operating in the metros and big
cities as per their present branch office locations. If they have to increase
their market size they have to open more distribution centers at the various
urban and semi-urban markets.

2.

To create the awareness about the different products of Mutual Fund and not
about the generic product. Various respondents were not aware of the mutual
fund products and the type of mutual fund schemes and the risk associated
with mutual fund products.

3.

To provide some kind of curriculum at the school/college level to create

awareness regarding Mutual Fund.

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CONCLUSION
The end of millennium marks 44 years of existence of mutual funds in this country.
The ride through these 44 years is not been smooth .Investors opinion is still
divided .while some are for the mutual funds others are against it.
Mutual Funds (MF) have become one of the most attractive ways for the average
person to invest his money. It is said that Bank investment is the first priority of
people to invest their savings and the second place is for investment in Mutual
Funds and other avenues. A Mutual Fund pools resources from thousands
of investors and then diversifies its investment into many different holdings such as
stocks, bonds, or Government securities in order to provide high relative safety
and returns. . Also generate leads of the prospective investors in Mutual Funds for
the Asset Management Company (AMC)
There are many improvements pending in the field and it has to happen as soon as
possible so as to call the MF industry as an Organized and well-developed sector.

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BIBLIOGRAPHY
Books:
Research Methodology

C. R. Kothari

Website:
www.economictimes.com
www.sebi.gov.in
www.mutualfundsindia.com
www.amfiindia.com
http://www.motilaloswal.com/Broking_and_Distribution/Product_and_Servic
es/Mutual_Funds/For_whom/ for Mutual Funds for whom
accessed on 18 march,2011

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