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On
“STUDY ABOUTINVESTORSPERCEPTIONAND
INVESTMENTPETTERNINMUTUAL FUND ATIDFC
AMC ltd”
Submitted in the partial fulfilment for the award of Post Graduate Diploma in
Management (PGDM), equivalent to MBA by AICTE
By
Rohit Tripathi
Enrolment No. – 1546
The findings in this report are based on the data collected by me during the
course of the project. While preparing this project, I have not copied from
any other report.
Finally, I am very thankful to Mr. Sunny Masand for his valuable academic
guidance in my project work.
2
PREFACE
3
ACKNOWLEDGEMENT
Rohit Tripathi
1546
4
ABSTRACT
Being such ahot and much takedabout financial product in the recent times, we takeit asa
greatopportunitytostudyandanalyzetheIndianmutualfundIndustryandgivemyobservationonit.Itwillnot
nlyhelpbuildingmycareerbutitwillalsohelpMahindra financein certain aspect.
TheIndianMutualFundsIndustryhaswitnessedaseachangesinceUTIwasfirstestablishedin
1963.Fromasingleplayerthenumberofplayershasincreasedtomorethan30andthenumberof
schemeshasspiraledtomorethan3500.Thelastdecadehasbeenaperiodofrapidgrowthforthe
MFindustry.Theindustryisinnascentstageatpresent.Ithascomealongwayandstillhaslotsof potential for
growth.
MyprojectinIDFCmainlydealswithtoUnderstandingInvestorsperceptionandinvestmentpattern
inmutualfundatIDFCandalsosellingthroughseveralfinancialchannelsavailableinthemarket. And mymain aim
is to attain profit for the company and give them goodbusiness. Fistpart ofstudy,
weundertaketheresearchstudysurveythroughquestionnairefilluponinvestmentpatternin
mutualfundbyInvestors.AndafterthatIvisitedthelistofbankgiventomeKotak,HDFC,Axis
Banketc.AndMeetwithRelationshipmanagerandtrytogivethemknowledgeabouttheproduct
andthentrytosaletheproducttotheirclientandUnderstandingofInvestorsperceptionand investment pattern in
mutualfund.
5
Tableof Content
Part:1Generalinformation
2 2.1 CompanyProfile 36
Part:2PrimaryStudy
3.4 ProblemStatement 60
3.6 Hypothesis
5 ResearchMethodology 62
4.1 ResearchDesign 62
6
4.3 Sampling Method 63
4.4 SamplingSize 63
6 Hypothesis testing 89
7 Suggestions 91
9 Findings 93
10 Conclusion 94
11 Bibliography 95
12 Annexure 96
7
1.1AboutThe Mutual fundIndustry
TheoneinvestmentvehiclethathastrulycomeofageinIndiainthepastdecadeismutual
funds.Today,themutualfundindustryinthecountrymanagesaroundRs329,162crore
(AsofDec,2006)ofassets,alargepartofwhichcomesfromretailinvestors.Andthis
amountisinvestednotjustinequities,butalsointheentiregamutofdebtinstruments.
Mutualfundshaveemergedasaproxyforinvestinginavenuesthatareoutofreachof mostretail
investors, particularlygovernment securities and moneymarket instruments.
Specializationistheorderoftheday,beitwithregardtoascheme’sinvestmentobjective
oritstargetedinvestmentuniverse.Giventheplethoraofoptionsonhandandthehard-sell
adoptedbymutualfundsvyingforapieceofyoursavings,findingtherightschemecan
sometimesseemabitdaunting.Mindyou,it’snotjustaboutgoingwiththefundthatgives
youthehighestreturns.It’salsoaboutmanagingrisk–findingfundsthatsuityourrisk appetite and
investmentneeds.
So,howcanyou,theretailinvestor,createwealthforyourself by investingthroughmutual
funds?Toanswerthat,weneedtogetdowntobrasstacks–whatexactlyisamutual
fund?Verysimply,amutualfundisaninvestmentvehiclethatpoolsinthemoniesof
severalinvestors,andcollectivelyinveststhisamountineithertheequitymarketorthe
debtmarket,orboth,dependinguponthefund’sobjective.Thismeansyoucanaccess either the
equityor thedebt market, or both, without investing directlyin equityor
debt.1.2MUTUALFUNDINDUSTRYININDIA
The end of millennium marks 36years of existence of mutual funds in this country.The
ridethrough these36years is not been smooth.Investors opinion is still divided.While
some arefor mutual funds others are against it.
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marked bygreat political and economic uncertainityinIndia. With was on the bordersand
economicturmoil that depressed thefinancial market, entrepreneurswere hesitant to enter
capital market.Though the growth was slow, Butitaccelerated from theyear 1987, when
non- UTIplayers enteredthe industry.In the past decade,Indian mutual fund industryhad
seen a
dramatic improvement, both qualities wise as wellas quantitywise. Before, the monopoly of
themarket had seenan ending phase: the Assent under Management(AUM) was Rs.67bn.
The private sector entryto the fundfamilyraised theAUM to Rs.470bn in March 1993 and
till April 2004;it reached the height of 1,540bn.
Themain reason of its poor growth is theat the mutual fund industryinIndia is new in the
country.Large sections ofIndian investrorsareyet to be intellect wih theconcept. Hence, it
is the primeresponsibilityof all mutual fund companies, to market theproduct correctly
abreast of selling.
Themutual fund industry can bebroadlyput into four phases according to the development
of thesector, Each phase is brieflydescribedas under.
First Phase-1964-87
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placeof RBI. The first scheme launched byeUTI was Unit Scheme 1964. At te end of1988
UTIhad Rs.6,700 croresof assets under management.
Theperiod 1986-1993can be termed as the periodof public sector mutual funds (PMSs).
From one player in 1985the number increased to8 in 1993. Entryof non-UTImutual funds.
SBImutual fundwas the first followed Canbank Mutual Fund (Dec 87), Punjab National
Bank Mutual Fund (Aug 89),Indian Bank Mutual Fund (Oct 90), Bank of
BarodaMutual fund (oct 92).LIC in 1989and GIC in 1990. The end of 1993 marked Rs.
47,000 as assets under management. The industrywas one-entityshow till 1986 when the
UTImonopolywas broken when SBIand BOI,LIC, GICetc. sponsored bypublic sector
banks.Starting with an assetbaseof Rs. 0.25bn in 1964 the industryhas grown at a
compounded averagegrowth rate of26.34% to its current size of Rs. 1130bn.
When the privatesectormade its debut in 1993-94, the stock market was booming. Also,
1993 was theyear in which the first Mutual fundRegulations came into being, under which
all mutual funds, exceptUTIwereto be registered and governed. Theerstwhile Kothari
Pioneer (now merged with Franklin Templeton) was the first private sectormutual fund
registered in july1993.Other Private sector mutual funds areMorgan Sanley, Jardine
Fleming,JP Morgan, GeorgeSorosand CapitalInternational along with the host of domestic
players join theparty.The 1993 SEBI(Mutual Fund)
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fund with total assets of Rs.1,21,805 crores. TheUnit Trust ofIndia with Rs. 44,541 crores
of assets under management was way ahead of other mutual funds.
This phasehad bitter experience forUTI.It was bifurcated into two separate entities. One
is the Specified Undertaking of the Unit Trust ofIndia with AUM ofRs.29,835 crores(as on
January2003). The specified undertaking of UnitTrust ofIndia,functioning under an
adminisratior and undethe rules framed byGovernment ofIndia and Doesnot come under
the purviewof theMutual Fund Regulations.
ThesecondistheUTIMutualFundLtd,sponsoredbySBI,PNB,BOBandLIC,Itis
registeredwithSEBIandfunctionsundertheMutualFundRegulations.Withthe bifurcation
of the erstwhile UTI which had in March 2000more than Rs.76,000crores
ofAUMandwiththesettingupofaUTImutualfund,conformingtotheSEBIMutual
FundRegulations,andwithrecentmergerstakingplaceamongdifferentprivate
sectorfunds,themutualfundindustryhasentereditscurrentphaseofconsolidation
andgrowth.AsattheendofSeptember2004,Therewere29fund,Whichmanage
assetsofRs.153108croresunder421StructureofMutualFundsinIndia.Attheend
ofyear2006theAUMcrossed 2,50,000crores.
GROWTHINASSETSUNDERMANAGEMENT
11
Theessentialfeaturesofthemutualfundsdistinguishingfromotheroftheinvestmentsare:-
Themutualfundisatrustintowhichmanyrelativelysmallinvestorsinvesttheir
moneytoformalargepoolofcashwhichistheninvestedinsecuritiesbythemanagerof the trust.
Thepriceatwhichunitscanbeboughtandsoldisgovernedsolelybythevalueof
theunderlyingsecuritiesheld by theMFanddealinginunitsareonthebasisofnetmarket value
ofthe investment per unit.
ThemanagersofMFareobligedtoredeemany unitsinissueondemandorcertain specified
period.
AlldividendincomethattheMFreceivesonitsinvestmentsispaidouttounit holders.
Sincetheunitheldbyinvestorevidencestheownershipofthefund’sassets,the value ofan
investors partownership is determinedbythe NAV of thenumber ofunits held.
1.3Conceptual FrameworkofMutualFund
AmutualfundisconstitutedasapublictrustcreatedundertheIndianTrustAct,1882.
SEBI(mutualfund)regulations,1996regulatethestructureofthemutualfundsinIndia. As per
theseregulationsshould havethe following three-tier structure:
i)Sponsor
ii)Trust/trustee
iii)Asset Management Company
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Sponsor
Sponsoristhepersonwhoactingaloneorincombinationwithanotherbodycorporate
establishesamutualfund.Thesponsorestablishesthemutualfundandregistersthesame
withSEBI.SponsorappointstheTrustees,custodiansandtheAMCwithpriorapprovalof
SEBIandinaccordancewithSEBIRegulations.Sponsormusthavea5-yeartrackrecord
ofbusinessinterestinthefinancialmarkets.Sponsormusthavebeenprofitmakinginat
least3oftheabove5years.Sponsormustcontributeatleast40%ofthenetworthofthe
InvestmentManagedandmeettheeligibilitycriteriaprescribedundertheSecuritiesand
ExchangeBoardofIndia(MutualFunds) Regulations,1996.TheSponsorisnotresponsible
orliableforanylossorshortfallresultingfromtheoperationoftheSchemesbeyondthe initial
contribution madebyit towards setting up of the Mutual Fund.
Trust
TheMutualFundisconstitutedasatrustinaccordancewiththeprovisionsoftheIndian
TrustsAct,1882bytheSponsor.ThetrustdeedisregisteredundertheIndianRegistration Act,
1908.
Trustee
13
Trusteeis usuallya company(corporate body)oraBoard ofTrustees (bodyof individuals).
ThemainresponsibilityoftheTrusteeistosafeguardtheinterestoftheunitholdersand
interaliaensurethattheAMCfunctionsintheinterestofinvestorsandinaccordancewith
theSecuritiesandExchangeBoardofIndia(MutualFunds)Regulations,1996,the
provisionsoftheTrustDeedandtheOfferDocumentsoftherespectiveSchemes.Atleast
2/3rddirectorsoftheTrusteeareindependentdirectorswhoarenotassociatedwiththe Sponsor in
anymanner.
AssetManagementCompany(AMC)
TheAMCisappointedbytheTrusteeastheInvestmentManageroftheMutualFund.The
AMCisrequiredtobeapprovedbytheSecuritiesandExchangeBoardofIndia(SEBI)to
actasanassetmanagementcompanyoftheMutualFund.Atleast50%ofthedirectorsof the AMC
areindependent directorswhoare notassociated with the Sponsor in anymanner. TheAMC
musthaveanet worth of at least 10 crore at all times.
RegistrarandTransferAgent
TheAMCifsoauthorizedbytheTrustDeedappointstheRegistrarandTransferAgentto
theMutualFund.TheRegistrarprocessestheapplicationform,redemptionrequestsand
dispatchesaccountstatementstotheunitholders.TheRegistrarandTransferagentalso handles
communicationswith investors and updates investor records.
Custodian
Acustodianisanagent,bank,trustcompany,orotherorganizationwhichholdsand
safeguards an individual's, mutual funds, orinvestment company'sassets for them.
AMutualFundisatrustthatpoolsthesavingsofanumberofinvestorswhosharea
commonfinancialgoal.Themoneythuscollectedistheninvestedincapitalmarket
instrumentssuchasshares,debenturesandothersecurities.Theincomeearn
14
theseinvestmentsandthecapitalappreciationrealizedissharedbyitsunitholdersin
proportiontothenumberofunitsownedby them.ThusaMutualFundisthemostsuitable
investmentforthecommonmanasitoffersanopportunitytoinvestinadiversified,
professionallymanagedbasketofsecuritiesatarelativelylowcost.Theflowchartbelow describes
broadlythe working of amutual fund:-
InvestorsearnfromaMutualFundinthreeways:
1.Incomeisearnedfromdividendsdeclaredbymutualfundschemesfromtimeto time.
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2.Ifthefundsellssecuritiesthathaveincreasedinprice,thefundhasacapitalgain.
Thisisreflectedinthepriceofeachunit.Wheninvestorsselltheseunitsatprices higherthan
their purchase price, theystand to make again.
3.Iffundholdingsincreaseinpricebutarenotsoldbythefundmanager,thefund's
unitpriceincreases.Youcanthensellyourmutualfundunitsforaprofit.Thisis tantamount
to a valuation gain.
Thoughstillatanascentstage,IndianMFindustryoffersaplethoraofschemesandserves
broadlyalltypeofinvestors.Therangeofproductsincludesequityfunds,debt,liquid,gilt
andbalancedfunds.Therearealsofundsmeantexclusivelyforyoungandold,smalland
largeinvestors.Moreover,thesetupofalegalstructure,whichhasenoughteethto
safeguardinvestors’interest,ensuresthattheinvestorsarenotcheatedoutoftheirhard-
earnedmoney.Allinall,benefitsprovidedbythemcutacrosstheboundariesofinvestor
categoryand thus createfor them, auniversal appeal.
Investorsofallcategoriescouldchoosetoinvestontheirowninmultipleoptionsbutopt formutual
funds for thesole reason thatall benefits come in apackage.
1.ProfessionalManagement
MutualFundsprovidetheservicesofexperiencedandskilledprofessionals,backedbya
dedicatedinvestmentresearchteamthatanalysestheperformanceandprospectsof
companiesandselectssuitableinvestmentstoachievetheobjectivesofthescheme.This
riskofdefaultbyanycompanythatonehaschosentoinvestin,canbeminimizedby
investinginmutualfundsasthefundmanagersanalyzethecompanies’financialsmore
minutelythananindividualcandoastheyhavetheexpertisetodoso.Theycanmanage the
maturityof their portfolio byinvesting in instruments of varied maturityprofile
2.Diversification
16
MutualFundsinvestinanumberofcompaniesacrossabroadcross-sectionofindustries and
sectors. This diversification reduces the riskbecause seldom doall stocksdeclineat the
sametimeandinthesameproportion.YouachievethisdiversificationthroughaMutual Fund with
far less moneythan youcan do onyour own.
3.ConvenientAdministration
InvestinginaMutualFundreducespaperworkandhelpsyouavoidmany problemssuchas
baddeliveries,delayedpaymentsandfollowupwithbrokers andcompanies.Mutual Funds
saveyour time and makeinvesting easyand convenient.
4.ReturnPotential
Overamediumtolong-term,MutualFundshavethepotentialtoprovideahigherreturnas
theyinvestinadiversifiedbasketofselectedsecurities.Apartfromliquidity,thesefunds
havealsoprovidedverygoodpost-taxreturnsonyeartoyearbasis.Evenhistorically,we
findthatsomeofthedebtfundshavegeneratedsuperiorreturnsatrelativelylowlevelof
risks.Onanaveragedebtfundshavepostedreturnsover10percentoverone-yearhorizon.
Thebestperformingfundshavegivenreturnsofaround14percentinthelastone-year
period.Innutshellwecansaythatthesefundshavedeliveredmorethanwhatoneexpects
ofdebtavenuessuchaspostofficeschemesorbankfixeddeposits.Thoughtheyare
chargedwithadividenddistributiontaxondividendpayoutat12.5percent(plusa
surchargeof10percent),thenetincomereceivedisstilltaxfreeinthehandsofinvestor and is
generallymuch morethan all otheravenues, on a post-tax basis.
5.LowCosts
MutualFundsarearelativelylessexpensivewaytoinvestcomparedtodirectlyinvesting
inthecapitalmarketsbecausethebenefitsofscaleinbrokerage,custodialandotherfees translate
into lower costsforinvestors.
6.Liquidity
17
Inopen-endschemes,theinvestorgetsthemoneybackpromptlyatnetassetvaluerelated
pricesfromtheMutualFund.Inclosed-endschemes,theunitscanbesoldonastock
exchangeattheprevailingmarketpriceortheinvestorcanavailofthefacilityofdirect
repurchaseatNAVrelatedpricesbytheMutualFund.Sincethereisnopenaltyonpre-
maturewithdrawal,asinthecasesoffixeddeposits,debtfundsprovideenoughliquidity.
Moreover,mutualfundsarebetterplacedtoabsorbthefluctuationsinthepricesofthe
securitiesasaresultofinterestratevariationandonecanbenefitsfromanysuchprice movement.
7.Transparency
Investorsgetregularinformationonthevalueofyourinvestmentinadditiontodisclosure
onthespecificinvestmentsmadebyyourscheme,theproportioninvestedineachclassof assets and
the fund manager's investment strategyand outlook.
8.Flexibility
Throughfeaturessuchasregularinvestmentplans,regularwithdrawalplansanddividend
reinvestmentplans;youcansystematicallyinvestorwithdrawfundsaccordingtoyour needs and
convenience.
9.Affordability
Asinglepersoncannotinvestinmultiplehigh-pricedstocksforthesolereasonthathis
pocketsarenotlikelytobedeepenough.Thislimitshimfromdiversifyinghisportfolioas
wellasbenefitingfrommultipleinvestments.Hereagain,investingthroughMFroute
enablesaninvestortoinvestinmanygoodstocksandreapbenefitseventhroughasmall
investment.Investorsindividuallymaylacksufficientfundstoinvestinhigh-gradestocks.
Amutualfundbecauseofitslargecorpusallowsevenasmallinvestortotakethebenefit of its
investment strategy.
10.ChoiceofSchemes
Mutual Funds offer afamilyof schemes to suityour varying needs overalifetime.
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11.WellRegulated
AllMutualFundsareregisteredwithSEBI andtheyfunctionwithintheprovisionsofstrict
regulationsdesignedtoprotecttheinterestsofinvestors.TheoperationsofMutualFunds
areregularlymonitored bySEBI.
12.TaxBenefits
Lastbutnottheleast,mutualfundsoffersignificanttaxadvantages.Dividendsdistributed
bythemaretax-freeinthehandsoftheinvestor.Theyalsogiveyoutheadvantagesof
capitalgainstaxation.Ifyouholdunitsbeyondoneyear,yougetthebenefitsofindexation.
Simplyput,indexationbenefitsincreaseyourpurchasecostby acertainportion,depending
upontheyearlycost-inflationindex(whichiscalculatedtoaccountforrisinginflation), thereby
reducingthegapbetweenyouractualpurchasecostandsellingprice.Thisreduces
yourtaxliability.What’smore,tax-savingschemesandpensionschemesgiveyouthe
addedadvantage of benefits under Section 88. You canavail ofa 20 percent tax exemption
on an investment of up to Rs 10,000 in the scheme inayear.
IndianEquity Others
Incomefrom
Incomefrom dividends-(investor-
dividends-(investor- free&DDT-individual
free& DDT-NIL) & HUL-14.025&
others-22.440
Incomefromcapital
Iincomefromcapital
gains-(shortterm-
gains-(short term-
asper taxslab & long
15%& long term-
term-10%or
free)
20%withindexation
19
Disadvantages of mutual funds
Mutualfundsaregoodinvestmentvehiclestonavigatethecomplexandunpredictable
worldofinvestments.However,evenmutualfundshavesomeinherentdrawbacks. Understand
these before you commityour moneyto amutual fund.
1.Noassuredreturnsandnoprotectionofcapital
Ifyou are planning to gowith a mutual fund, this must beyour mantra: mutual funds do not
offerassuredreturnsandcarryrisk.Forinstance,unlikebankdeposits,yourinvestmentin
amutualfundcanfallinvalue.Inaddition,mutualfundsarenotinsuredorguaranteedby
anygovernmentbody(unlikeabankdeposit,whereuptoRs1lakhperbankisinsuredby
theDepositandCreditInsuranceCorporation,asubsidiaryoftheReserveBankofIndia).
Therearestrictnormsforanyfundthatassuresreturnsanditisnowcompulsoryforfunds
toestablishthattheyhaveresourcestobacksuchassurances.Thisisbecausemostclosed-
endfundsthatassuredreturnsintheearly-ninetiesfailedtosticktotheirassurancesmade
atthetimeoflaunch,resultinginlossestoinvestors.Aschemecannotmakeany guarantee
ofreturn,withoutstatingthenameoftheguarantor,anddisclosingthenetworthofthe guarantor.
The past performanceof the assuredreturn schemes should alsobe given.
2.Restrictivegains
Diversificationhelps,ifriskminimizationisyourobjective.However,thelackof
investmentfocusalsomeansyougainlessthanifyouhadinvesteddirectlyinasingle
security.Assume,Relianceappreciated50percent.Adirectinvestmentinthestockwould
appreciateby50percent.Butyourinvestmentinthemutualfund,whichhadinvested10 per cent of
its corpus in Reliance, will seeonlya5 per centappreciation.
3.Taxes
Duringatypicalyear,mostactivelymanagedmutualfundssellanywherefrom20to70
percentofthesecurities intheirportfolios.Ifyourfundmakesaprofitonitssales,youwill paytaxes
on theincome you receive, even ifyou reinvest the money you made.
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4.Managementrisk
Whenyouinvestinamutualfund,youdependonthefund'smanagertomaketheright
decisionsregardingthefund'sportfolio.Ifthemanagerdoesnotperform aswellasyouhad
hoped,youmightnotmakeasmuchmoneyonyourinvestmentasyouexpected.Of
course,ifyouinvestinIndexFunds,youforegomanagementrisk,becausethesefundsdo not
employmanagers.
ThereareawidevarietyofMutualFundschemesthatcatertoyourneeds,whateveryour
age,financialposition,risktoleranceandreturnexpectations.Whetherasthefoundationof
yourinvestmentprogrammeorasasupplement,MutualFundschemescanhelpyoumeet
yourfinancial goals.
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TYPESOFMUTUALFUNDSCHEME
ByInvestment
Bystructure OtherSchemes
Objectives
Tax savingfund
Open-ended DebtSchemes Equity Schemes
Schemes
CloseEnded
Schemes Sectorspecific fund
22
22
MM Mutual
Large capfund
fund
Open-EndedSchemes
Thesedonothaveafixedmaturity.YoudealdirectlywiththeMutualFundforyour
investmentsandredemptions.Thekeyfeatureisliquidity.Youcanconvenientlybuyand sellyour
units at Net Asset Value ("NAV") relatedprices.
Close-EndedSchemes
Schemesthathaveastipulatedmaturityperiod(rangingfrom2to15years)arecalled
close-endedschemes.Youcaninvestdirectlyintheschemeatthetimeoftheinitialissue
andthereafteryoucanbuyorselltheunitsoftheschemeonthestockexchangeswhere
theyarelisted.Themarketpriceatthestockexchangecouldvaryfromthescheme'sNAV
onaccountofdemandandsupplysituation,Unitholders'expectationsandothermarket factors.
Oneofthecharacteristicsoftheclose-endedschemesisthattheyaregenerallytradedata
discounttoNAVbutclosertomaturity,thediscountnarrows.Someclose-endedschemes
giveyouanadditionaloptionofsellingyourunitsdirectlytotheMutualFundthrough
periodicrepurchaseatNAVrelatedprices.SEBI Regulationsensurethatatleastoneofthe two exit
routes areprovided to the investor.
IntervalSchemes
Thesecombinethefeaturesofopen-endedandclose-endedschemes.Theymaybetraded
onthestockexchangeormaybeopenforsaleorredemptionduringpredetermined intervals at
NAVrelatedprices.
23
(B) ByInvestment Objective
GrowthSchemes
Aimtoprovidecapitalappreciationoverthemediumtolongterm.Theseschemes
normallyinvestamajorityoftheirfundsinequitiesandarewillingtobearshort-term
declineinvalueforpossiblefutureappreciation.Theseschemesarenotforinvestors seeking
regular income or needing their moneybackin the short term.
IncomeSchemes
Aimtoprovideregularandsteadyincometoinvestors.Theseschemesgenerallyinvestin
fixedincomesecuritiessuchasbondsandcorporatedebentures.Capitalappreciationin such
schemes maybe limited.
Idealfor
BalancedSchemes
Aimtoprovidebothgrowthandincomebyperiodicallydistributingapartoftheincome
andcapitalgainstheyearn.Theyinvestinbothsharesandfixedincomesecuritiesinthe
proportionindicatedintheirofferdocuments.InarisingstockmarkettheNAVofthese schemes
maynot normallykeep pace, or fall equallywhen the market falls.
Idealfor:
24
MoneyMarket/LiquidSchemes
Idealfor:
Corporateandindividualinvestorsasameanstoparktheirsurplusfunds
forshort periods orawaiting a more favorable investment alternative.
Other Schemes
TaxSavingSchemes
Theseschemesoffertaxrebatestotheinvestorsundertaxlawsasprescribedfromtimeto
time.ThisismadepossiblebecausetheGovernmentoffers taxincentivesforinvestmentin
specifiedavenues.Forexample,EquityLinkedSavingsSchemes(ELSS)andPension
Schemes.Thedetailsofsuchtaxsavingschemesareprovidedintherelevantoffer documents.
Idealfor:
SpecialSchemes
Thiscategoryincludesindexschemesthatattempttoreplicatetheperformanceofa
particularindexsuchastheBSESensexortheNSE50,orindustryspecificschemes
(whichinvestinspecificindustries)orsectorialschemes(whichinvestexclusivelyin segments
such as A Group shares or initial publicofferings)
25
DifferentModesofReceivingtheIncome
Earned FromMutual Fund Investments
Growth Plan:
Inthisplan,dividendisneitherdeclarednorpaidouttotheinvestorsbutitisbuilt
intothevalueoftheNAV.Intheotherwords,theNAVincreasesovertimedueto
suchincomesandtheinvestorrealizesonlythecapitalappreciationonredemption of his
investment.
IncomeplanorDividendPayoutPlan:
Inthisplan,dividendsarepaid-outtotheinvestors.Inotherwords,theNAVonly reflects
thecapital appreciation or depreciation inthe market price ofthe underlying portfolio.
DividendReinvestmentPlan:
Inthisplan,dividendisdeclaredbutnotpaidouttotheinvestors.Instead,itis reinvested
back in to thescheme at thethen prevailing NAV.In otherwords, the
26
RISKHIERARCHYOFMUTUALFUNDS
RISK
Growth Funds
Focused Flexible Asset
DebtFunds Allocation Fund
Value Funds
Diversified Equity
Fund
Equity Income
Funds
TYPEOF FUND
27
Mutual Fund Investment Strategies
SIPsentailaninvestortoinvestafixedsumofmoneyatregularintervalsinMFscheme
theinvestorhaschosen.Thismayhelpyougainfromanyappreciationintheeventof upside or
alternatively, average your cost during downside.
SeeingthepresentvolatilityinthemarketSIPisthebestoptionavailabletotheinvestor
duetoregularentryintothemarketwhichcausesrupeecostaveragingandhencecovers the
volatility.
Theseplansarebestsuitedforpeoplenearingretirement.Intheseplansinvestorinvestina
mutualfundschemeandisallowedtowithdrawafixedsumofmoneyatregularintervals to take
care of expenses.
Theyallowtheinvestortotransferonaperiodicbasisaspecifiedamountfromonescheme
toanotherwithinthesamefundfamilymeaningtwoschemesbelongingtothesame
mutualfund.Atransferwillbetreatedasredemptionofunitsfromtheschemefromwhich the
transfer is made.
StepOne-Identifyyourinvestmentneeds.Yourfinancialgoalswillvary,basedonyour
age,lifestyle,financialindependence,familycommitments,levelofincomeandexpenses among
manyother factors. Therefore, thefirst step is to assessyour needs.
28
StepTwo-ChoosetherightMutualFund.Onceyouhaveaclearstrategyinmind,you
nowhavetochoosewhichMutualFundandschemeyouwanttoinvestin.Theoffer
documentoftheschemetellsyouitsobjectivesandprovidessupplementarydetailslikethe
trackrecordofotherschemesmanagedbythesameFundManager.Somefactorsto evaluatebefore
choosinga particular Mutual Fund are:
Thetrackrecordofperformanceoverthelastfewyearsinrelationtothe
appropriateyardstick andsimilar funds in the same category.
HowwelltheMutualFundisorganizedtoprovideefficient,promptand
personalized service.
Degreeoftransparencyasreflectedinfrequencyandqualityoftheir
communications.
Step Three-SelecttheidealmixofSchemes.
InvestinginjustoneMutualFundschememaynotmeetallyourinvestmentneeds.You may
consider investing in a combination of schemes to achieveyour specific goals.
Thefollowingchartscouldproveusefulinselectingacombinationofschemesthatsatisfyyour
needs.
AggressivePlan
GrowthScheme
Income Scheme
Balanced Scheme
GrowthScheme
Income Scheme
Money Scheme
Balanced Scheme
Figure5
StepSix-StartearlyItisdesirabletostartinvestingearlyandsticktoaregularinvestment
plan.Ifyoustartnow,youwillmakemorethanifyouwaitandinvestlater.Thepowerof
compoundingletsyou earnincomeonincomeandyourmoneymultipliesatacompounded rateof
return.
StepSeven-ThefinalstepallyouneedtodonowistogetintouchwithaMutualFundor
yourAgent/brokerandstartinvesting.Reaptherewardsintheyears tocome.Mutual Funds
aresuitableforeverykindofinvestor-whetherstartingacareerorretiring,conservativeor risk
taking, growth oriented or income seeking.
Whatfeesandcommissionswillyoupaywhenyouinvestinmutual
funds?
Thefeesandcommissionsyoumaybechargedcanvarywidelyfromonefund,andone
dealer,tothenext.Someofthechargesmaybenegotiable,butyoushouldmakesurethat
youunderstandallofthecostsbeforeyouinvest.Therearetwomaincoststoconsider–
themanagementandoperatingexpensesthatarechargedtothefundeachyear,andthe
salescharges (orloads)thatyou paywhenyou buyor sellthe fund.
30
ManagementandOperatingExpensesareexpensespaideachyearbythefundand
includesuchthingsasthemanager’sfees,legalandaccountingfees,custodialfeesand
bookkeepingcosts.TheManagementExpenseRatio(MER)isthepercentageofthe
fund’saveragenetassetsthattheseexpensesrepresent.Forexample,ifa$100millionfund
has$2millionincostsfortheyearitsMERwillbe2%.MERscanrangefromunder1%
peryearforsomemoneymarketfundstoalmost3%forsomeequityfunds.Thehigherthe
MER,thegreatertheimpactonthefund’sperformanceandthereturntoitsinvestors becausethese
expenses areremoved beforethe value is reported.
Forexample,youmighthavetopaya6%feeifyouredeemthefundafteroneyear,4%if
youredeemafterthreeyears,andnocommissionifyouredeemaftersevenyears.An
increasingnumberoffundsarebeingsoldonano-loadbasis,inwhichinvestorspayno
salescharges,butbeforeyoudecidethatano-loadfundisrightforyou,considerthefund’s
performance,itsmanagementexpenseratioandthelevelofserviceandadviceyouwill receive.
31
DifferentAvenuesofinvestment
OPTIONS RETURN RISK LIQUIDITY
Savings account Verylow Verylow High
Fixed Deposits Low Low Low
Direct Equity Veryhigh return Veryhigh High
Insurance Medium Low Low
Companyfixed deposits Low High Verylow
Debentures Low Medium Medium
Bonds Low Low Low
Mutualfunds High Medium High
Post officeschemes Low Low Low
Government securities Low Low Low
Real estate High High Low
Currency High High High
Bullion Medium High Medium
32
IMPACTOF TECHNOLOGY
Mutualfund,duringthelastonedecadebroughtoutseveralinnovationsintheirproducts
andisofferingvalueaddedservicestotheirinvestors.Someofthevalueaddedservices that
arebeing offered are:
• Electronicfundtransfer facility.
• Investment and re-purchase facilitythrough internet.
• Added features like accident insurance cover, medclaim etc.
• Holdingtheinvestmentinelectronicform,doingawaywiththetraditionalformof
unitcertificates.
• Chequewriting facilities.
• Systematic withdrawal and deposit facility.
Theinnovationtheindustrysawwasinthefieldofdistributiontomakeitmoreeasily
accessibletoaneverincreasingnumberofinvestorsacrossthecountry. Forthefirsttime in
Indiathemutualfundstartusingtheautomatedtrading,clearingandsettlementsystemof stock
exchanges forsale and repurchase of open-ended de-materialized mutual fund units.
SystematicInvestmentPlan(SIP)andSystematicWithdrawalPlan(SWP)wereoptions
introducedwhichhavecomeinveryhandyfortheinvestortomaximizetheirreturnsfrom
theirinvestments.SIPensuresthatthereisaregularinvestmentthattheinvestormakeson
specifieddatesmakinghispurchasestospreadoutreducingtheeffectoftheshortterm
volatilityofmarkets.SWPwasdesignedtoensurethatinvestorswhowantedaregular
incomeorcashflowfromtheirinvestmentswereabletodosowithapre-defined
automatedform.TodaytheSWfacilityhascomeinhandyfortheinvestorstoreducetheir taxes.
33
2.1 COMPANYPROFILE-
IDFChave beenan integral part of the country'sdevelopment storysince 1997, when our
companywas formed with the specific mandate tobuild the nation.
Since 2005, wehave built on our vision to be the 'onefirm'that looks afterthe diverseneeds of
infrastructuredevelopment. Whetherit is financial intermediation forinfrastructure projects
and services, adding value through innovative products to the infrastructurevalue chain or
asset maintenanceof existing infrastructureprojects, wefocusonsupporting companies to get
the bestreturn on investments.
Ourgrowth has been driven bythe substantial investment requirements of the infrastructure
sector inIndia combinedwith the growth in theIndian economyover the last severalyears.
Our abilityto tap globalas well asIndianfinancial resources makes us theacknowledged
experts in infrastructure finance. This, coupledwith a strong synergybetween the company
management and keyshareholders, anda dedicated team of over 550 people makes us an
organization that is committed to improving the faceofIndia's infrastructure sector.
AtIDFC, our commitment to building India's infrastructuregoes beyond business. We work
closelywith governmententities and regulators toadvise and assist them in formulating
policyandregulatoryframeworks that support private investment and public-private
partnerships in infrastructure development.
Mission
“Tobetheleadingknowledge-drivenfinancial services
company,creatingenduringvalue,promoting infrastructureandnationbuilding”
Values
Integrity
We engagein honest and straight forward communication with all stakeholders and adhere
to the highest ethical standards in everythingwe do. Our reputation is paramount. We will
act in the best interests ofour clients but without compromising our values and principles.
NurturingHumility
34
We aremodest enough toknow that wecan bewrong and smart enough tolearn from our
mistakes. We treat everyone as an equal— no task is beneath us.
Stewardship
We act as custodians ofourfirm and accept thechargeof passing on abetter business than the
oneweinherited. Ouractions will be guided byrulesand ethical principles creating long term
value with due carefor societyandenvironment.
Partnership
We emphasize aONE FIRM culture. We foster mutual respectand proactivelycollaborate
with each other,with clients, and with partners keeping just one thing in mind– to be the
best at what wedo.
Initiative
We encourage new ideasand independentactionwithin a culturethat fosters sharing
knowledge and information, critical debate and constructive dissent.
Responsibility
We takecomplete ownership for our actions, emphasizing a results-oriented and problem-
solving approach to business. We arepersonallyaccountableto thecommunities that we
serve.
Excellence
We constantlystrive to raise industrystandards, be theemployer of choice,and work to be
the best ratherthan the biggest. Dedication to excellenceresults in superiorexecution and
generates creative, imaginative and innovative outcomes.
Board Committees
35
Corporate : Dr. Rajiv B.Lall Risk :Mr. Gautam Kaji
Social Chairman Committee Chairman
Responsibility Dr. Omkar Goswami Mr. S. H. Khan
Committee Mr. VikramLimaye Dr. Rajiv B.Lall
Ms. MarianneØkland
Mr. VikramLimaye
History& Timelines
OurGroup was born outof the needfor aspecialized financial intermediaryfor
infrastructure.Incorporated on January30, 1997 in Chennai, our companywas set up on the
recommendations of the'Expert Groupon Commercialisation ofInfrastructureProjects' under
theChairmanshipof Dr. Rakesh Mohan.
Since then, wehave beena leading catalystforproviding private sector
infrastructuredevelopment inIndia. We focus on developing and leveraging our knowledge
basein the infrastructure space to devise and provide appropriate financing solutions to our
customers. Ourstrong capitalization reflects the crucial role that weplayin
infrastructuredevelopment.
1997
IDFC is founded on therecommendations of the'Expert Group on Commercialization of
InfrastructureProjects'under theChairmanship ofDr.Rakesh Mohan. Thegroup is
conceptualized to channel private capital into commerciallyviableprojects.
1999
2000
36
2001
2002
2003
Successfullyraises $200million for the India Development Fund, the first infrastructure-
focused private equityfund.
2005
2006
2007
2008
2009
The company's loan book crosses Rs. 20,000 crore with morethan 200 infrastructure
projects funded.
37
EstablishesIDFC Foundation to focus on capacitybuilding, policyadvisoryand
sustainabilityinitiatives.
Becomes part of Nifty50.
2010
2011
2012
IDFC business
Corporate Investment Real Estate
Banking
Project Finance Public MarketAsset
Financial Management
MarketsGroup Mutual Fund
Securities
Foundation
AlternativeAsset Government
Management AdvisoryServices
Private PolicyAdvocacy
Equity CapacityBuildingInitiatives
Infrastructure
CommunityEngagement
38
Structure ofthe organization
Company’s structure
Countryhead
Statehead
distributionchannel
Clusterheads
ofinvestments
Individualbrokers
Backoffice
operation
Salesteam
StateheadlooksafteralltheoperationinKarnatakaregionlikeBellary,MysoreandothercitiesofKarnataka
andcoordinateswithassetmanagementcompaniesi.e.AMCsandreportstocountryhead,andclusterheads
ofinvestmentsareresponsibleforsalesteamandreporttostateheaddistributionchannelandsalespeople
39
whodirectlyinteractwithinvestorsfortheinvestmentsreporttoclusterheadinvestment.Salesteamis
supportedbybackoffice operations, like role of backoffice operation
STRENGTH WEAKNESS
OPPORTUNITY THREATS
40
AverageAssetsunder Management
Assets under management (AUM)is a financial term denoting the market value of all the
funds being managed byafinancial institution (amutual fund, hedgefund,private equity
firm, venturecapital firm, or brokeragehouse) onbehalf ofits clients, investors, partners,
depositors, etc.
The average Assets under management of all Mutual funds inIndia for the quarter Jul-13 to
Sep-13 (inINR billion) is given below:
42
CHRONICLE ORDEROFCOMPANIESGIVING MOST RETURN.
Fund Category 5
YrRetu
rn
DSPMLT.I.G.E.R.Fund Equity: Diversified 45.45
43
HDFCTop200 Equity: Diversified 39.29
Bylookingatthistable we canrankvariousassetmanagementcompaniesonthebasisofassetunder
management. They are asfollows:
44
1) Reliancemutual fund
3) UTImutual fund
5) SBImutual fund
BylookingatthisrankwecansaythatinIndiapeopleprefertoinvestin
relianceschemeand they arehaving great faith on RelianceCompany.
SCHEMESOFIDFC
Scheme:IDFCAdvantageFund
Scheme:IDFCDividendYieldplus
Scheme:IDFCEquityplan
45
Type Openended equitylinkedsavings schemes
Investment 80%inequity&20% inshort term, money market&
liquid instruments
Fundobjective Long termgrowthof capital along with income tax
relief for investment
Investment Minimumof 3years
horizon
Scheme:IDFCIndexFund
Scheme:IDFCopportunitiesFund
Scheme:IDFCMidCapFund
46
Scheme:IDFCBalanceFund
Scheme:IDFCAssetAllocationFund
Scheme:IDFCDynamicBondFund
47
Fundobjective To generateoptimalreturns withhighliquidity
Investment Minimumof one year
horizon
Scheme:IDFCIncomePlus
48
3.1IntroductiontoStudy
• Tostudy variousinvestmentalternativesandinparticularinvestorspreference
towards mutual funds.
• To studythe preference of investors in today’s scenario (less risk and morereturn).
• Toassesstheriskofinvestorswithreferencetodiversifiablerisk&non-
diversifiablerisk.
• To studymarket potentialityof mutual fund among investors.
• To studywhether theinvestors are consideringIDFC a better option or not.
3.2LITERATUREREVIEW
Literatureonmutualfundperformanceevaluationisenormous.Afewresearchstudiesthat
haveinfluenced the preparation of this paper substantiallyare discussed in this section.
Sharpe,WilliamF.(1966)suggestedameasurefortheevaluationofportfolioperformance.
Drawingonresultsobtainedinthefieldofportfolioanalysis,economistJackL.Treynorhas
suggestedanewpredictorofmutualfundperformance,onethatdiffersfromvirtuallyall
thoseusedpreviouslybyincorporatingthevolatilityofafund'sreturninasimpleyet meaningful
manner.
49
NarayanRao,ET.al.,evaluatedperformanceofIndianmutualfundsinabearmarketthrough
relativeperformanceindex,risk-returnanalysis,Treynor’sratio,Sharpe’sratio,
Sharpe’smeasure,Jensen’smeasure,andFama’smeasure.Thestudyused269open-ended
schemes(outoftotalschemesof433)forcomputingrelativeperformanceindex.Thenafter
excludingfundswhosereturnsarelessthanrisk-free returns,58schemesarefinallyusedfor
furtheranalysis.Theresultsofperformancemeasuressuggestthatmostofmutualfund
schemesinthesampleof58wereabletosatisfyinvestor’sexpectationsbygivingexcess returns
over expected returns based on both premiums for systematic riskand total risk.
BijanRoy,ET.al.,conductedanempiricalstudyonconditionalperformanceof
Indianmutualfunds.Thispaperusesatechniquecalledconditionalperformanceevaluation
onasampleofeighty-nineIndianmutualfundschemes.Thispapermeasuresthe
performanceofvariousmutualfundswithbothunconditionalandconditionalformof
CAPM,Treynor-MazuymodelandHenriksson-Mertonmodel.Theeffectofincorporating
laggedinformationvariablesintotheevaluationofmutualfundmanagers’performanceis
examinedintheIndiancontext.Theresultssuggestthattheuseofconditioninglagged
informationvariablesimprovestheperformanceofmutualfundschemes,causingalphasto shift
towards right and reducing the numberof negative timing coefficients.
Mishra, et al., (2002) measured mutual fund performanceusing lower partial moment.Inthis
paper,measuresofevaluatingportfolioperformancebasedonlowerpartialmomentare developed.
Riskfromthelowerpartialmomentismeasuredbytakingintoaccountonlythosestatesin
whichreturnisbelowapre-specified“targetrate”likerisk-freerate.KshamaFernandes
(2003)evaluatedindexfundimplementationinIndia.Inthispaper,trackingerrorofindex
fundsinIndiaismeasured.Theconsistencyandleveloftrackingerrorsobtainedbysome well-
runindexfundsuggeststhatitispossibletoattainlowlevelsoftrackingerrorunder
Indianconditions.Atthesametime,theredoseemtobeperiodswherecertainindexfunds appear
todepart fromthedisciplineofindexation.K.Pendarakietal.studiedconstructionof
mutualfundportfolios,developedamulti-criteriamethodologyandappliedittotheGreek
marketofequitymutualfunds.Themethodologyisbasedonthecombinationofdiscrete
andcontinuousmulti-criteriadecisionaidmethodsformutualfundselectionand
50
composition.UTADISmulti-criteriadecisionaidmethodisemployedinordertodevelop mutual
fund’s performancemodels.
Goalprogrammingmodelisemployedtodetermineproportionofselectedmutualfundsin
the finalportfolios.
ZakriY.Bello(2005)matchedasampleofsociallyresponsiblestockmutualfunds
matchedtorandomlyselectconventionalfundsofsimilarnetassetstoinvestigate
differencesincharacteristicsofassetsheld,degreeofportfoliodiversificationandvariable
effectsofdiversificationoninvestmentperformance.Thestudyfoundthatsocially
responsiblefundsdonotdiffersignificantlyfromconventionalfundsintermsofanyof
theseattributes.Moreover,theeffectofdiversificationoninvestmentperformanceisnot different
betweenthetwogroups.BothgroupsunderperformedtheDomini400SocialIndex and S &P 500
during thestudyperiod.
(Jensen’salpha)thatestimateshowmuchamanager’sforecastingabilitycontributesto fund’s
returns.
AsindicatedbyStatman(2000),theeSDARofafundportfolioistheexcessreturnofthe
portfoliooverthereturnofthebenchmarkindex,wheretheportfolioisleveragedtohave
thebenchmarkindex’sstandarddeviation. S.NarayanRao,ET.al.,evaluatedperformance of
Indianmutualfundsinabearmarketthroughrelativeperformanceindex,risk-return
analysis,Treynor’sratio,Sharpe’sratio,Sharpe’smeasure,Jensen’smeasure,andFama’s
measure.Thestudyused269open-endedschemes(outoftotalschemesof433)for
computingrelativeperformanceindex.Thenafterexcludingfundswhosereturnsareless thanrisk-
freereturns,58schemesarefinallyusedforfurtheranalysis.Theresultsof
performancemeasuressuggestthatmostofmutualfundschemesinthesampleof58were
abletosatisfyinvestor’sexpectationsbygivingexcessreturnsoverexpectedreturnsbased on both
premiums for systematic risk and total risk.
51
3.3Background Information
Theinvestor’sfundsaredeployedinaportfolioofsecuritiesbythefundmanager.The
valueoftheseinvestmentskeepschangingasthemarketpriceofthesecuritieschange.
Sinceinvestorsarefreetoenterandexitthefundatanytime,itisessentialthatthemarket
valueoftheirinvestmentsisusedtodeterminethepriceatwhichsuchentryandexitwill
takeplace.Thenetassetsrepresentthemarketvalueofassets,whichbelongtothe investors, on
agiven date.
NAV=NetAssetofthescheme/NumberofUnitsOutstanding
(Marketvalueofinvestment+currentassetsandotherassets+Accruedincome–current
liabilitiesandotherliabilities–lessaccruedexpenses)/No.ofUnitsOutstandingasatthe NAV date.
NAVofallschemesmustbecalculatedandpublishedatleastweeklyforclosed–end
schemes and dailyfor open- end schemes.
52
.NAV-:
Net Asset Value isthemarket value ofthe assets of the scheme minus its liabilities.The per unitNAV
isthe netasset valueofthescheme divided bythe number of unitsoutstandingon the Valuation Date.
How is NAVcalculated?
Thevalueof all thesecurities in the portfolio incalculateddaily.From this, all expensesare deducted and
the resultantvalue divided bythe number ofunitsin the fund is the fund’s NAV.
ExpenseRatio
AMCschargeanannualfee,orexpenseratiothatcoversadministrativeexpenses,salaries,
advertisingexpenses,brokeragefee,etc.A1.5%expenseratiomeanstheAMCchargesRs1.50forevery Rs100
inassets under management.
Afund'sexpenseratioistypicallytothesizeofthefundsundermanagementandnottothereturns
earned.Normally,thecostsofrunningafundgrowslowerthanthegrowthinthefundsize-so,themore
assetsinthefund,thelowershould beits expense.
Entryloadandanexitload
SomeAssetManagementCompanies(AMCs)havesalescharges,orloads,ontheirfunds(e
and/orexitload)tocompensatefordistributioncosts.Fundsthatcanbepurchasedwithoutasalesch
calledno-
loadfunds.Entryloadischargedatthetimeaninvestorpurchasestheunitsofascheme.yloadpercentageisaddedto
theprevailingNAVatthetimeofallotmentofunits.Exitloadischarge
timeofredeeming(ortransferringaninvestmentbetweenschemes).Theexitloadpercentageisdedu
mtheNAVatthetimeofredemption(ortransferbetweenschemes).ThisamountgoestotheA nagement
Companyand not into the pool of funds of thescheme.
53
How does "entryload"affect theinvestment returns?
A2.25%entryloadsoundssmall.Butitstillbitesachunkoffthereturnsoveralongperiodoftime.
Forinstance,Rs1lakhinvesteddirectly intheno-loadoptionofanequityfundthatgrowsatarateof
15%overaperiodof20yearsyieldsaroundRs16.36lakhagainstRs15.99lakhthataloadfund wouldreturn—
adifferenceofRs36,820.Thisisbecauseevenasmallsumof2.25%gets compounded over theyears.
Thisdependsontheunderlyinginstrumentthatamutualfundinvestsin,basedonitsinvestment
objectives.Mutualfundsthatinvestinstockmarket-relatedinstrumentscannotbetermed“risk-free
orsafe”asinvestmentinsharesareinherentlyriskybynature,whereasfundsthatinvestinfixed-
incomeinstrumentsarerelativelysafeandthosethatinvestonlyingovernmentsecuritiesarethe safest.
Firstly,wearenotallinvestmentprofessionals.Wegotoadoctorwhenweneedmedicaladviceora
lawyerforlegalguidance,similarlymutualfundsareinvestmentvehiclesmanagedbyprofessional
fundmanagers.AndunlessyouratehighlyontheInvestmentIQQuiz,werecommendyouusethis
optionforinvesting.Mutualfundsarelikeprofessionalmoneymanagers,howeverakeyfactorin
theirfavoristhattheyaremoreregulatedandhenceofferinvestorstheabilitytoanalyzeand
evaluatetheirtrackrecord.
54
Secondly,investingisbecomingmorecomplex.Therewasatimewhenthingswerequitesimple-
themarketwentupwiththearrivalofthefirstmonsoonshowersandeveryyeararoundDiwali.
SinceIndiastartedintegratingwiththeworld(withthestartoftheliberalizationprocess),complex
factorssuchasanincreaseinshort-termUSinterestrates,thecollapseoftheBraziliancurrencyor
defaultonitsdebtbytheRussiangovernment,havestartedhavinganimpactontheIndianstock
market.AlthoughitispossibleforanindividualinvestortounderstandIndiancompanies(and
investing)insuchanenvironment,theprocesscanbecomefairlytimeconsuming.Mutualfunds
(whosefundmanagersarepaidtounderstandtheseissuesandwhoseassetmanagementcompany invests in
research) provide an option of investing without getting lostinthe complexities.
Lastly,andmostimportantly,mutualfundsprovideriskdiversification:Diversification ofaportfolio
isamongsttheprimarytenetsofportfoliostructuring(seeTheNeedtoDiversify).Andanecessary
onetoreducethelevelofriskassumedbytheportfolioholder.Mostofusarenotnecessarilywell
qualifiedtoapplythetheoriesofportfoliostructuringtoourholdingsandhencewouldbebetteroff leaving that
to a professional. Mutual funds represent one such option.
What'sstrategygottodowithselectingamutualfund?Shouldn'tyoujustgoandinvestinthebest
performingfund?Theanswerisno.Mutualfundinvestingrequiresasmuchstrategicinputasany
otherinvestmentoption.Buttheadvantageisthatthestrategyhereisanaturalextensionofyour
assetallocationplan(useourAssetAllocatortounderstandwhatyouroptimumassetallocationplan
shouldbe,basedonyourpersonalriskprofile).Thefollowingprocessesareimportanttoselecta mutual fund
scheme.
Identify funds whose investment objectives match your asset allocation needs
Justasyouwouldbuyacomputerthatfitsyourneedsandbudget,youshouldchooseamutualfund
thatmeetsyourrisktolerance(need)andyourriskcapacity(budget)levels(i.e.hassimilar
investmentobjectivesasyourown).Typicalinvestmentobjectivesofmutualfundsincludefixed
incomeorequity,generalequityorsector-focused,highriskorlowrisk,blue-chipsorturnarounds, long-
termor short-termliquidityfocus. Theinvestment objectives match yoursare
Evaluatepastperformance,lookforconsistency.Althoughpastperformanceisnoguaranteeof
futureperformance,itisausefulwayofassessinghowwellorbadlyafundhasperformedin
comparisontoitsstatedobjectivesandpeergroup.Agoodwaytodothiswouldbetoidentifythe
55
fivebestperformingfunds(withinyourselectedinvestmentobjectives)overvariousperiods,say3
months,6months,oneyear,twoyearsandthreeyears.Shortlistfundsthatappearinthetop5in
eachofthesetimehorizonsastheywouldhavethusdemonstratedtheirabilitytobenotonlygood
butalso,consistent performers..
Thisdependsontheinstrumentmutualfundinvestsin,basedonitsinvestmentobjectives.Mutual
fundsthatinvestinstockmarket-relatedinstrumentscannotbetermed“risk-freeorsafe”as
investmentinsharesareinherentlyriskybynature,whereasfundsthatinvestinfixed-income instruments
arerelativelysafeand those that invest onlyin government securities arethe safest.
RoleofaFundManager:
Fundmanagersareresponsibleforimplementingaconsistentinvestmentstrategythatreflectsthe
goalsandobjectivesofthefund.Normally,fundmanagersmonitormarketandeconomictrendsand analyze
securities in order to make informed investment decisions.
AllAssetManagementCompanies(AMCs)areregulatedbySEBIandortheRBI(incasetheAMC
ispromotedbyabank).Inaddition,everymutualfundhasaboardofdirectorsthatrepresentsthe unit holders’
interests in the mutual fund.
3.4 STATEMENTOFPROBLEM
MutualFundsareFinancialintermediariesconcernwiththemobilizingsavingsofsurplus income
&channelisationof thesesavings in thoseavenues wherethereis demand offunds.
56
diversification & ExpertManagement.
Thereforetheactivitiesofmutualfundshavebothshort&longtermimpactonthesavings
&capitalmarket&thenationaleconomy.MutualFunds,thus,assisttheprocessof financial
depending &intermediation.
3.5ObjectivesoftheStudy
• Tostudy variousinvestmentalternativesandinparticularinvestorspreference
towards mutual funds.
• To studythe preference of investors in today’s scenario (less risk and morereturn).
• Toassesstheriskofinvestorswithreferencetodiversifiablerisk&non-
diversifiablerisk.
• To studymarket potentialityof mutual fund among investors.
• To studywhether theinvestors are consideringIDFCa better option or not.
57
Chapter: -4
Research
Methodology4.1ResearchDesign
ResearchMethodologyisasystematicmethodofdiscoveringnewfactsorverifyingold
facts,theirsequence,inter-relationship,casualexplanationandthenaturallawswhich
governsthem.Initwestudythevariousstepsthataregenerallyadoptedbyaresearcherin the
studying his researchproblem along with the logic behind them.
Differentstagesinvolvedinresearchconsistsofenactingtheproblem,formulatinga
hypothesis,collectingthefactsordata,analyzingthefactsandreachingcertainconclusion
eitherintheformofsolutiontowardstheconcernedproblemoringeneralizationforsome
theoretical formulation.
Type of Sample Design:Judgment Sampling
4.2Data Collection
The Data is divided in two parts:
a) PrimaryData.
b) SecondaryData.
PrimaryData is the data, which is collected directlybydirect personal
interview,Interview,indirectoralinvestigation,Informationreceivedthroughlocalagents,Draftin
ga schedule, drafting aquestionnaire.
4.5 Datacollection
instumentResearch instrument
4.6StatisticalToolsUsed
We have chosenANOVA and CHI-SQURE as Statistical Tools forTesting Hypothesis.
59
CHAPTER:-5
DataAnalysisandInterpritation.
TABLE-1:
AGEWISECLASSIFICATIONOFRESPONDENTS
AGEWISENOOFRESPONDENTS
492 0- 2 9 69 3 0- 39
40- 4 9
50- 5 9
35
13 A B O V E60 34
Interpretation:
According to the surveythe respondents wereof differentagegroups. There are
no respondents of age below 20 arein no number.The investors of age 20-29 are69 in
numberwith 34.5%. The investors of age30-39 are 13 with 6.5%, 40-49 thereare34
investors with 17% and in between 50-59 there are 35 investors with 17.5% and above 60
thereare49 investors with 24.5%.
60
TABLE-2:
GENDEROFTHERESPONDENTS
GENDEROFTHERESPONDENTS
180
/
160
NO.OFRESPONDENTS
140
PERCENTAGE
120 NO. OF
100 RESPONDENTS
80 PERCENTAGE
60
40
20
0
MALE FEMALE
GENDER
Interpretation:Inthesurveynumberofmalerespondentsaremoreinnumberthat
isabout79%&thenextpositionhasbeenoccupiedbyfemalerespondentstheyare about 21%
ofthe sampleso, mainlymen arepreferring to go for investments.
61
TABLE-3:
OCCUPATIONOFTHERESPONDENTS
OCCUPATIONOFTHERESPONDENTS
16 9
15 HOUSE HOLD
46 BUSINESS
30 SERVICE
PROFESSIONAL
RETIRED
STUDENT
84
Interpretation:
According to the surveythe respondents wereof different occupations. Most of
respondents are from service sector is about 42%of the sample. Respondents from the
business areoccupying 23%, then comes professional with 15%, students occupy8%,
retired people occupy7.5%, with house hold occupying 4.5%.
62
TABLE-4:
ANNUALINCOMEOFTHERESPONDENTS
ANNUALINCOMEOFTHERESPONDENTS
90
NO.OFRESPONDENTS/
80
70
PERCENTAGE
60 NO. OF
50 RESPONDENTS
40 PERCENTAGE
30
20
10
0
0 S H
S00 HS
H K
A
0,
1,0 2 LAK 3LAK 3L
< - -
1 2 VE
O
AB
ANNUALINCOM
E
Interpretation:
According to the survey,the respondents of the income group of less than 1 lack are
of 26.5%. Theywere about 42% of the respondents areofthe income groupbetween 1-2 lack.
24%of the respondents wereof the income group 2-3 lacks. 7.5%respondents wereof the
income group morethan 3 lacks.
63
TABLE-5:
DOTHERESPONDENTSINVESTTHEIRMONEY
RESPONDENTSINVESTINGTHEIRMONEY
250
NO.OFRESPONDENTS/
200
PERCENTAGE
NO. OF
150 RESPONDENTS
100 PERCENTAGE
50
0
YES NO
INVESTMENTS
Interpretation:
All the respondents considered in the sample, do invest their savings.
Out of the total sample the respondents going for investments aretotal in numbers with all the two
hundred respondents considered insample aregoingfor completeinvestments with 100%.
64
TABLE-6:
incomekeepaside
70
60
50
40
30 NO. OF RESPONDENTS
20
10
0
0% to 5% to 10% to15% to20% toAbove 15%
5% 10% 20% 30% 30%
65
TABLE-7
Importantfactors
90
80
70
60
50
40
30 NO.OF RESPONDENTS
20
10
0
Safety of Opportunity for Liquidity
investment growth
principle
66
TABLE-8:
INVESTORSPREFERENCEFORVARIOUSINVESTMENTS
OBJECIVES
OPTIONS
RANK SCORE
SECURITY 1 55
YEILD 2 47
MATURITY 4 35
TAXBENEFITS 5 22
LIQUIDITY 3 40
INVESTMENTOBJECTIVEOFTHEINVESTOR
SECURITY
LIQUIDITY 7%
20%
YEILD
SECURITY
13%
YEILD
MATURITY
TAXBENEFITS
MATURITY
27% LIQUIDITY
TAXBENEFITS
33%
67
Interpretation:
Differenttypesofinvestors look forward to differentinvestmentobjectives. Most ofthe
investors ranked 1sttosecurity, 2ndrank to yield, 3rdrank has been given to liquidity, 4th
&5thranksfor maturity&tax benefits.
INVESTORPREFERENCEFORVARIOUSINVESTMENTS
OBJECTIVES
MODELCALCULATION:
=817/15
=55.
68
TABLE-9:
AWARENESSOFMUTUALFUNDS
AWARENESSOFMUTUALFUNDS250
200
150
NO.OF RESPONDENTS
100
50
0
YES NO
Interpretation:
According to the survey,mostinvestors areaware of mutual funds.Itcan be
observed from the above table that 100%of respondents are aware of Mutual
69
TABLE-10:
AWARENESSOFMUTUALFUNDSISTHROUGH
INFLUENCEOFINVESTMENTDECISIONIST
HROUGH
ADVERTISEME
RELATIVES NT
13% ADVERTISEMENT
26%
FRIENDS
FINANCIAL FAMILY MEMBERS
ADVISORS FRIENDS FINANCIALADVISORS
32% FAMILY 19% RELATIVES
MEMBERS
10%
Interpretation:
According to the survey,the respondents are more aware of mutual funds through
Financial Advisors whooccupy32%, followed byAdvertisements 26%, Friends 19%,
Relatives 13%&FamilyMembers 10%
70
TABLE11:
MUTUALFUNDISAGOODINVESTMENTOPTION.
MUTUALFUNDISAGOODINVESTMENTOPTION
180
/
160
NO.OFRESPONDENTS
140
PERCENTAGE
120 NO. OF
100 RESPONDENTS
80 PERCENTAGE
60
40
20
0
YES NO
OPTIONS
Interpretation:
Manyof the individuals areof the viewthat mutual fund is a good investment option.
Of the total sample surveyaround 79.5%of the respondents feel that mutual fund is a good
investment option &20.5% of the respondents feel that it is not a good investment option.
71
TABLE12:
NO.OFRESPON
OPTION DENTS PERCENTAGE
Up to
8%
OPTION 52
NO.OFRESPONDENTS 26PERCENTAGE
< 1 year Betwee 46 23
37.5
1to 3 n8%
year to18% 75
3to 5 year 80 50 40 25
> 5 year Above 29 15.5
TOTAL 200 100
18% 68 34
TOTAL 200 100
returnexpectation9
0
80
70
60
50
40
NO.OF
30
RESPONDENTS
20
10
0
Up to8% Between 8%to Above 18%
18%
In
Interpretation:- more no of respondent expecting 8%to18%ofreturn on theirinvestment
72
TABLE13
How long are youplanningtostayinvestin mutualfund?
NO.OFRESPONDENTS80
70
60
50
40
NO.OF
30
RESPONDENTS
20
10
0
< 1 year 1 to3 year3 to 5 year > 5 year
73
TABLE-14:
IDFCASADISTRIBUTOROFM
UTUALFUNDS
/
160
RESPONDENTS
140
120
PERCENTAGE
NO. OF
100
RESPONDENTS
80
PERCENTAGE
60
OF
40
200
O
N
IDFC OTHERS
OPTIONS
Interpretation:
According to the survey,69% of therespondents are awareof idfcas a distributor of mutual
funds &these69% of the investors would like to invest in idfc mutual fund option. The rest 31%
oftherespondents would like to prefer ot
74
TABLE-15:
TYPEOFFUNDSRESPONDENTSPREFERTO
90
80
PERCENTAGE
70
60 NO. OF
50 RESPONDENTS
OF
40 PERCENTAGE
30
O
N
20
.
10
0
DEBTFUND EQUITYFUND
H
YBRID
FUND
OPTIONS
Interpretation:
From the surveyconducted
the respondents
preferEquityfunds morein
number
theyoccupy56.5%,followed
byDebt funds with30.5% and
averyfew respondents prefer
to hybrid funds with 13%.
75
TABLE-16:
TYPEOFSCHEMEPREFEREDBYRESPONDENTINDEBTFUNDS
TYPEOFSCHEMEPREFEREDBYRESPONDENTINDE
BTFUNDS
Interpretation:
Based on the survey, it is found that the respondents prefer dynamicbond fund which occupies
35%, then follows isthe bondIndex Fund with 21%, thirdly Income Plus is seen with
morepercentagewith 17, followed byGilt Fund, FloatingRate Fund, &Liquid Fund with 12, 10,
5.
76
TABLE19:
RESPONDENTSPREFFERINGOTHERBRANDSOFMUTUAL
FUNDS
RESPONDENTSPREFFERINGOTHERBRANDSOF
MUTUALFUNDS
HDFC
FRANKLIN 16%
19% TEMPELTON
8% HSBC
KOTAKMAHIN
DRA
18% 29%
10% DSPMERYILCH
UTI
Interpretation:
Based on the survey, it is found that the respondents would definitelypreferother
brands of Mutual Funds with Franklin Templeton in the leadwith 29%, then HDFC with
18%, UTIin the fourth placewith 16%,Kotak Mahindra with 18%, HSBCwith 10% &
DSPmerllich with 8%.
77
TABLE20:
RESPONDENTRECOMMENDINGIDFCMUTUALFUNDASABE
TTERINVESTMENTOPPURTUNITY
ISIDFCABETTERINVESTMENT
180
/
160
NO.OFRESPONDENTS
140
PERCENTAGE
120 NO. OF
100 RESPONDENTS
80 PERCENTAGE
60
40
20
0
YES NO
OPTIONS
Interpretati
According to the surveythe respondents recommendingIDFCMutual Fund as a
better investment opportunityis of 78%.&the respondents who do not recommend idfc
as abetter investment opportunityare 22%.
78
TABLE21:
Tick& Rate IDFC mutual fund ascompare toother mutual fund company.(1=
verygood&5= verybad)
1 2 3 4 5
OPTIONS NO.OFRESPONDENTS PERCENTAGE
1 120 60
2 32 16
3 24 12
4 16 8
5 8 4
TOTAL 200 100
120
100
80
60 OPTIONS
40 NO.OF RESPONDENTS
20
0
1 OPTIONS
2 3 4 5
79
TABLE22:
CHAPTER:-6HYPOTESISTESTING
CaseProcessingSummary
Cases
ANNUALINCOME*TYPEOFFUNDSRESPONDENTSPREFERTOCrosstabulation
Count
1-2 LAKHS 6 23 13 42
2-3 LAKHS 21 33 13 67
ABOVE 3 LAKHS 26 33 13 72
Chi-SquareTests
80
Asymp. Sig. (2-
Value df sided)
ANOVA
ANNUAL INCOME
81
CHAPTER:-7SUGGESTION
1.submission of application
formsinprescribedtime 2.proper follow-up
3.transparencyin the process
4.Providing everypossible information about the product
5.Companycan also work servicerecoveryprocessif anyofthis kind of problem occurs
1. Unavailable service
2. Unreasonableslow services
82
3. Other core service failures
Service recovery isconcerned with the processof addressingthefailure of the serviceshere question
comes how
thatcanbedoneorhowMahindrafinancehasdone,forthatthereshouldbecomplainfrominvestorssideorit
shouldreflect inthe researchdoneby company
BellandZemkehasproposedfiveingredientsforrecoverywhichcompanycanuseforits
recovery.
1.acknowledgementof theproblem
2.explanationof the problem
3.apologywhere appropriate
4.compensationasrequired
83
CHAPTER:-8
LIMITATIONOFSTUDY
LIMITATIONSOFTHESTUDY
1) Sometime stock market are not performing well so people are not interestedto invest
2) Sometimebecauseofnegativesentimentsinthemarketpeoplearenotreadytoinvestfore.g.the
subprime crisis in US affected thestock market inIndia.
3)Many peoplehavegoodknowledgeoftheequitymarket by themselvessothey don’twanttoinvestin
mutual fund
4)Manyare looking forthe short term benefits for which sometime mutual fund is not the best
option
5)Manypeople whowant to have high risk highreturn are not suitable formutual fund
6)Somepeoplearenotreadytoinvestinmutualfundbecauseofthelackofknowledgeaboutthe product
7)Mostofthetimepeoplearebusyintheirscheduleandsotheydon’twanttolistentoanythingonthe
telephonecalls.
8)Insmalltownspeoplearenotwillingtopurchasemutualfundbecauseoflackofknowledgethey
ratherprefer to invest in real state
9)It is also difficult to measure economic factorassociated with time
constrain 10) Time constrain
84
CHAPTER:-9
FINDINGS
Fromthecomparisonofvariousmutualfundschemes,itisunderstandthattheequity
diversifiedschemeisprovidingagoodreturnforalongerperiodofinvestment.Butthereturniswholly
dependingonthemarket.Sotheriskishighercomparetoanyotherschemes.OntheotherhandtheGiltfundis
investingin Government securities, treasury bills,bonds, debenturesetc. But inthis case thereturnis low.
But risk
isverylowcomparabletoanequitydiversifiedscheme.IntheELSSscheme,thereisalockingperiodof3years.
Stillmostofthetaxschemesgiveagoodreturnthroughdividendsalso.ButtheMIPschemeisnotgivingagood
return. As thisschemeis also investing in bonds and debentures,it gives acontinuous returntothe investors.
85
CHAPTER:-10
CONCLUSION
Fromthecomparisonofvariousmutualfundschemes,itisunderstandthattheequity
diversifiedschemeisprovidingagoodreturnforalongerperiodofinvestment.Butthereturniswholly
dependingonthemarket.Sotheriskishighercomparetoanyotherschemes.OntheotherhandtheGiltfundis investingin
Government securities, treasury bills,bonds, debenturesetc. But inthis casethereturnis low. But risk
isverylowcomparabletoanequitydiversifiedscheme.IntheELSSscheme,thereisalockingperiodof3years.
Stillmostofthetaxschemesgiveagoodreturnthroughdividendsalso.ButtheMIPschemeisnotgivingagood return. As
thisschemeis also investing in bonds and debentures,it gives acontinuous returnto the investors.
Companyhasgoodchancestobeno.1inmutualfunddistributionhouseprovidedwhatservicesisbeen
providedbythecompany,Ithinkcompanyinservicessectorcannotaffordtohaveunhappycustomerbecause
86
CHAPTER:-11
BIBLIOGRAPHY
BIBILOGRAPHY
www.mutualfundsIndia.com
www.moneycontrol.com
www.mahindrafinance.com
www.amfiindia.com
www.valueresearch.com
www.IDFC.com
www.bseindia.com
www.crisil.com
87
CHAPTER:-12
ANNEXURE
Questionnaire
Name:-__________________________________________________Mobile
no.:-________________
Q: (1)AGE:-
BELOW 20 40-49
20-29 50-59
30-39 ABOVE 60
Q: (2)GENDER:-
MALE
FEMALE
Q: (3)OCCUPATION:-
HOUSE HOLD
BUSINESS
SERVICE
PROFESSIONAL
88
Q: (4)ANNUALINCOME:-
< 1,00,0001-
2 LAKHS 2-
3 LAKHS
ABOVE 3 LAKHS
Q: (5)DOTHEYOUINVESTTHEIR MONEY
YES
NO
Q:(6)whatpercentofyourincomedoyoukeepasidefordifferentinvestment options?
0% to 5%
5% to 10%
10%to15%
15%to20%
20%to30%
Above 30%
Safetyof investmentprinciple
Opportunityfor growth
Liquidity
SECURITY
YEILD
MATURITY
TAX BENEFITS
LIQUIDITY
89
YES
NO
ADVERTISEMENT
FRIENDS
FAMILY MEMBERS
FINANCIALADVISORS
RELATIVES
YES
NO
Up to 8%
Between 8%to18%
Above 18%
< 1 year
1to 3 year
3to 5 year
> 5 year
Q:(14)RESPONDENTSPREFFERINGIDFCASADISTRIBUTOROF
MUTUALFUNDS
IDFC
OTHERS
DEBTFUND
EQUITYFUND
HYBRIDFUND
90
Q: (16) TYPE OF SCHEMEPREFERED BY RESPONDENT IN DEBTFUNDS
LIQUIDFUND
FLOATERATE
GILTFUND
DYNAMIC BONDFUND
INCOMEPLUS
BONDINDEX FUND
ADVANTAGEFUND
MID CAP
EQUITYPLAN
MNC FUND
INDEXFUND
DIVIDEND YEILDPLUSINDIA
OPPURTUNITIES FUND
MIP I
MIP II
BALANCEDFUND
Q:(19)RESPONDENTSPREFFERINGOTHERBRANDSOFMUTUAL FUNDS
HDFC
FRANKLIN TEMPLETON
HSBC
KOTAK MAHINDRA
DSPMERYLLICH
UTI
Q:(20)RESPONDENTRECOMMENDINGIDFCMUTUALFUNDASA
BETTERINVESTMENTOPPURTUNITY
YES
NO
91
Q: (21) Tick & Rate IDFC mutual fund ascompare to other mutualfundcompany.
(1=verygood &5= verybad)
1 2 3 4 5
92