Declaration

I, Robin Singh Keshawat, hereby declare that the Reserch Project entitled “Are
People transfer their investment in Mutual Fund” is prepared by me with
reference to Government Bangur P.G. College, Pali Marwar. Prepared by me
under guidance of Ms. Deepti Kareer faculty of BBA Department. I further declare
that this Research Project is based on Secondary data. This is my Original Work.

I also declare that this Research Project work is towards the partial fulfillment of
University Regulation for award of degree of Bachelor of Buisness Administration
by Government Bangur P.G. College Pali Marwar.

DATE: ROBIN SINGH KESHAWAT

BBA FINAL YEAR

ROLL NO.
Chapter:1 Problem & Objective
Problems:

1. Expenses
Mutual funds can be your friend and your enemy when it comes to expenses. On
the plus side, some mutual funds do not have a transaction fee making it a perfect
investment for someone that contributes a small amount regularly — i.e., automatic
investment. On the downside, mutual funds charge an annual expense ratio on the
entire investment. For example, if a fund has an expense ratio of 1% and you have
$10,000 in investment, the annual expense is $100. This is not too bad. However, if
you have $250,000, the yearly expense is $2,500 — that’s a lot of money!

2. Sub-Optimal Purchases
Mutual funds managers cannot hoard cash. When investors buy shares of a mutual
fund, the fund manager must turn around and buy shares of stocks that fit within
certain guidelines specified by the prospectus. For example, if it’s a “Small Value
Fund,” the manager cannot buy a “Large Growth” stock even if it represents a better
buying opportunity. Additionally, if there are not enough good buying opportunities
to choose from, the fund manager is forced to buy less desirable stocks.

3. Over Diversification
Either by design or as a consequence of the problem explained above, many mutual
funds suffer from over-diversification. Basically, the fund has so much cash that it is
forced to own hundreds of stocks within its classification. Consequentially, the fund
manager can’t focus on the high potential stocks, and the mutual fund becomes a
closet index fund — i.e., merely reflecting the average within that particular group.

4. Forced Redemption
Similarly, the fund manager is forced to sell stocks when investors sell shares of the
mutual fund, and the fund doesn’t have enough cash reserve to meet the demand.
Since rushes of redemption usually happen when the market decline sharply — i.e., a
correction or a bear market — this is often the worst time to sell stocks. However,
the fund manager has no choice and has to sell underlying stocks even if it’s not the
best financial decision to do so.

5. Tax Consequences
Lastly, mutual funds have a strange characteristic when it comes to taxes. You could
owe tax even if the value of your investment is going down! When a fund sells a
stock for a profit — whether it’s by design or forced — it passes the tax bill on to
you in the form of annual capital gains distribution. If your timing is bad, for
example, you buy just before the fund makes its capital gains distribution or you buy
during the year that the fund manager is taking a lot of profit, you could end up
paying a very big tax bill for no good reason.

How to Avoid Mutual Funds Problems and

Pitfalls
As I mentioned at the beginning, mutual funds make sense for some investors under
certain circumstances. However, there are occasions when you want to choose other
alternatives. In my opinion, one of the best alternatives is Exchange-Traded
Funds (ETFs). Although you have to pay trade commissions, the expense ratio is
much lower than an equivalent mutual fund. And due to how ETFs are created, the
remaining four problems are virtually eliminated.

Objectives:

Objectives of Mutual Fund:

 Exploring Growth Funds

o Some mutual fund investors are looking for rapid growth in the value of their
funds. Stocks have historically offered the best long-term returns of any asset
class, though it can be an up-and-down ride.
o Stock funds that are labeled "growth" typically invest in companies with bright
prospects, while "value" funds target stocks that seem inexpensive compared
with the company's earnings.

Diversification of Assets
o Investors are often advised that they shouldn't "put all their eggs in one
basket." Investors who have too high of a percentage of their assets in one or
two stocks can be severely affected if one of the companies goes belly-up.
Most financial experts say investors should have at least 15 stocks in their
portfolios.
o It takes a lot of time and effort to keep up with that many companies.
o Conversely, mutual funds hold a number of stocks, which gives investors
instant diversification and protects them from a sharp decline in any one
holding.

Evaluating the Benefits of ETFs

o Exchange-traded funds, or ETFs, have become attractive investment
opportunities for many individuals due to the numerous benefits they offer.
Thanks to a highly diverse grouping of assets, ETFs are considered a relatively
stable form of investment, and are linked to every major index today.
o Compared to mutual funds, ETFs typically feature a lower expense ratio,
making them more affordable for investors.

Identifying Steady Income Opportunities

o Other fund investors care more about receiving income from their investments.
Numerous stock funds invest in companies with high dividend payouts.
o Bond funds also can provide steady income, as can funds that invest in real
estate investment trusts, or REITs.
o All these income-focused funds pass the yields along to their investors, usually
on a monthly or quarterly basis. Yields of 3 percent to 7 percent are often
available with income-oriented mutual funds.

Gaining International Exposure

o Some large international firms offer their shares on U.S. markets, but others
don't. For example, individual investors can have a hard time getting access to
shares in the fast-growing Chinese market.
 o But international-focused mutual funds have an easier time investing in these
shares. Exposure to overseas stocks and mutual funds may add much-needed
diversification and open the door to additional lucrative opportunities.

Benefitting From Low Fees

o Stock picking can be expensive thanks to broker commissions, but many "no-
load" mutual funds are available that don't charge investors anything.
o Many other funds charge investors less than 1 percent a year for operational
fees.
o Investors looking for especially inexpensive funds might consider index funds,
which charge fees as low as 0.1 percent per year.
o In 2018, Fidelity even introduced zero-fee index funds. These funds usually
hold every stock or bond in a given asset class, which offers tremendous
diversification at a low cost.

Chapter:2 Review of Literature

Review of the literature play spiritual role in exploring the hidden truth of the research work
carried out by the researchers who have little knowledge or no exposure. It provide base for the
future study. In order to analyze the past and to predict the future growth, study on mutual fund
is paramount. Considering the importance several academicians and research agencies tried to
study the psychology of investors which is influenced by prevailing surroundings and cast its
shadow on capital market potential. It is found that very few of studies have been done in past on
behavioral finance and the produced fact about investor perceptions, preferences, attitudes and
behavior of that time is not sufficient for any purpose but with passing time their authenticity
needed to be justified. With this noble view this study is carried out in order to fulfill the gap and
judicially verify the authenticity and validity of the past studies and correlate the future of MF.
De Bondt and Thaler (1985) in their study examined the possible psychological basis for investor
behavior and found that recent firm performance impact investor perception in forming future
expectations, Ippolito (1992) in his study revealed that past performance of the funds and money
flows play important role in selection of any fund / schemes, Shafir etal., (1993) in his study
suggests that, role of investor psychology in asset price is everyday fact for the practitioner. And
advocated that investors are not completely rational, they exhibit risk-seeking behavior, they tend
to segregate outcomes of different decisions, and their expectations are often biased in
predictable direction, Gupta (1994) in his survey based study on the investor preferences on MFs
and other financial assets, and suggested that the policy makers and mutual funds to design the
financial products for the future, Madhusudhan V Jambodekar (1996) in their study examined the
awareness and influencing factor in buying decision of MFs among investors and found that the
investors look for safety of Principal, Liquidity and Capital appreciation in the order of
importance, Sujit Sikidar and Amrit Pal Singh (1996) in their study examined the behavioral
aspect of the investors of the North International Journal of Marketing, Financial Services &
Management Research____________________ ISSN 2277- 3622 Vol.2, No. 8, August (2013)
Online available at www.indianresearchjournals.com 98 Eastern region and revealed that the
salaried and self employed formed the major investors in mutual fund primarily due to tax
concessions, Shanmugham (2000) in his study found that among the various factors,
psychological and sociological factors dominated the economic factors in share investment
decisions, (Rangarajan, 2001) in his study concluded that all advertisement of Mutual Funds
should disclose the high and lows (on a yearly basis) of the fund and the month and year when
the NAV was below par, (Balaramasamy, 2003) in his study revealed that investor consider
financial advisor as a important motivator in the selection of Mutual Funds, (Veenavenugopal,
2006) in his study conclude that the Mutual Funds are typically a debt Funds with an Equity
Kicker added to it. Investors feel that it provides them with valuation as against investing
according to the NAV after the close of the IFO, Kavitha Ranganathan (2006) in her study
examined financial markets as an aggregate of statistical observation and the related aspects of
the fund selection behavior of individual investors. She concludes that the Mutual Funds which
has become an important portal for the small investors, is also influenced by their financial
behavior, Manish Mittal and Dr. R. K. Vyas (1) (2007) in their study examined the behavioral
finance as a emerging science and its impact which focuses on understanding how psychology
affects investment decision and also investigated how investment choice gets affected by the
demographics of the investor and reveled that demographic variables play critical role in
decision making, Bazo, Javier & Pablo (2009) in their study tried to examine the market for
equity mutual funds and found that funds with worse decline performance charge higher fees and
emphasizes that better fund governance may bring fees more in line with performance, Boyson,
Naik &Narayan Y (2009) in their study examined the performance of funds relative to hedge
funds and traditional mutual funds and found that despite using similar trading strategies, hedged
mutual funds underperform hedge funds, Chen, Kraft & Weiss (2011) in their study investigated
mutual funds that engage in tax planning and how do they respond to changes in the capital gains
tax rates and found that there was consistency with tax planning by managers of both open-end
and closed-end mutual fund and indicated that the tax planning play important role in selection
of the fund, Manish Mittal and Dr. R. K. Vyas (2) (2009) in their study stated that men and
women differ in their risk and investment styles. Women are more risk averse and prefer low risk
fixed income investments. Psychologists suggest the reason for their different investing style is
that women are more methodical in information processing strategy, which leads to increased
perception of risk as compared, Dr. Yadav Ajay Pratap (2011), in his survey based study reveals
that private sector mutual funds have now not only captured market share but also mind share of
the investors, Saini Simran, Dr Anjum Bimal, Saini Ramandeep (2011) in their study analyses
the mutual fund investments in relation to investor‟s behavior and examined the investors‟
opinion and perception in respect to financial advisors and brokers, investors‟ opinion relating to
factors that attract them to invest in mutual funds, sources of information, deficiencies in the
services provided by the mutual fund managers. The study found that investors are highly
influenced by the financial advisors and select funds recommended by them without any
analysis.

1. Ms. Avani Shah and Dr. Narayan Baser (2012) carried out a survey in Ahmadabad with an
objective to study the investor’s preference in selection of mutual funds. They have taken two
variables: Age and occupation and tried to find the impact of these two variables on investors
preference towards mutual fundsand concluded that occupation is a variable that affect the
investors preferencebut age does not play any important role. 2. Soumyasaha and Munmun Day
(2011) in their article “Analysis of Factors affecting investors perception of Mutual fund
investment” published in The IUP journal of Management Research, April 2011 concluded that
consumer behavior is an important area of research studies. Investors expectation is a very
important factor in this regard that needs to be analysed by all alternative investment avenues.
The International Journal of Commerce and Management Research 62 success of any mutual
fund a popular means of investment depends on how efficiently it has been able to meet the
investor’s expectation. MF industry in India has a large untapped market. Electronic sale of
financial products is gaining volumes with the widespread acceptability of ebuying. 3. Singh J.
and S. Chander (2006)in their article “Investors Preference for Investment in
MutualFunds:AnEmpiricalEvidence”PublishedinTheICFAIJo urnalofBehavioral Finance, 2006.
Pointed out that since interest rates on investments like public provident fund, national saving
certificate, bankdeposits,etc.arefalling,thequestiontobe
answeredis:Whatinvestmentalternativeshouldasmallinvestorad opt?Direct
investmentincapitalmarketisanexpensiveproposal,andkeeping moneyinsaving schemes is not
advisable. One of the alternatives is to invest in capital market through mutual
funds.Thishelptheinvestoravoidtherisksinvolvedindirectinvest ment.
Consideringthestateofmindofthegeneralinvestor,thisarticlefigu redoutthe preference attached to
different investment avenues by the investors. The preference of mutual funds schemes over
others for investment. The source from which the investor
getsinformationaboutmutualfundsandtheexperiencewithregard toreturnsfrom
mutualfunds.Theresultsshowedthattheinvestorsconsideredgold tobethemost
preferredformofinvestment,followedbyNSCandpostofficesche mes.Hence, the basic psyche of an
Indian investor, who still prefers to keep his savings in the form of yellow metal, is indicated.
Investorsbelonging to the salaried category, and in theage group of 20-35, years showed
inclination towards close-ended growth (equityoriented)schemesovertheotherschemetypes. A
majority of the investors basedtheir investment decision on the advice of brokers, professionals
and financial advisors. The findingsalsorevealedthevariedexperienceofrespondentsregardi
ngthereturns received from investments made in mutual funds. 4. Singh J. and S. Chander.
(2006) in their article “Investors' Preference for Investment in Mutual Funds: An Empirical
Evidence.” Published in The ICFAI Journal of Behavioral Finance,2006 pointed out that since
interest rates on investments like public provident fund, national saving certificate, bank
deposits, etc,, are falling, the question to be answered is: What Investment alternative should a
small investor adopt? Direct investment in capital market is an expensive proposal, and keeping
money in saving schemes is not advisable. One of the alternatives is to invest in capital markets
through mutual funds. This helps the investor avoid the risks involved in direct investment
Considering the state of mind of the general investor, this article figured out the preference
attached to different Investment avenues by the investors; the preference of mutual funds
schemes over others for investment; the source from which the investor gets information about
mutual funds; and the experience with regard to returns from mutual funds. The results showed
that the investors considered gold to be the most preferred form of investment, followed by NSC
and Post Office schemes. Hence, the basic psyche of an Indian investor, who still prefers to keep
his savings in the form of yellow metal, is indicated. Investors belonging to the salaried category,
and in the age group of 20-35, years showed inclination towards close-ended growth (equity-
oriented) schemes over the other scheme types. A majority of the investors based their
investment decision on the advice of brokers, professionals and financial advisors. The findings
also revealed the varied experiences of respondents regarding the returns received from
investments made in mutual funds 5. Chalam G. V. (Dr.) (2003)in his article “Investors
Behavioral Pattern of Investment and Their Preferences of Mutual Funds.” Published in
SOUTHERN ECONOMIST, Feb 1, 2003 concluded that off all the sections of the society, the
household group contributes much of the capital, forming the lifeblood for the economy.
According to his analysis, the mutual fund business in India is still in its embryonic form as they
currently account for only 15 % of the market capitalisation. The success of mutual funds
business largely depends on the product innovation, marketing, customer service, fund
management and committed manpower. The investment pattern of the investors reveals that a
majority of the investors prefer real estate investments followed by mutual fund schemes, gold
and other precious metals. 6. Shanmugham (2000)conducted a survey of 201 individual investors
to study the information sourcing by investors, their perceptions of various investment strategy
dimensions and the factors motivating share investment decisions, and reports that among the
various factors, psychological and sociological factors dominated the economic factors in share
investment decisions. 7. G.Prathap and Dr. A. Rajamohan have done study on status of
awareness among Mutual Fund Investors in Tamil Naduand their satisfaction level relating to
various issues like rate of return, liquidity, safety, tax consideration, growth perspective, capital
gain, maturity period etc. The study outlined that mostly the investors have high level awareness
and positive approach toward investing in Mutual Funds.

Chapter:3 Research Methodology

Secondary Research: Definition

Secondary research or desk research is a research method that involves using already existing
data. Existing data is summarized and collated to increase the overall effectiveness of research.

Secondary research includes research material published in research reports and similar
documents. These documents can be made available by public libraries, websites, data obtained
from already filled in surveys etc. Some government and non-government agencies also store
data, that can be used for research purposes and can be retrieved from them.

Secondary research is much more cost-effective than primary research, as it makes use of already
existing data, unlike primary research where data is collected first hand by organizations or
businesses or they can employ a third party to collect data on their behalf.

Secondary data collection in Research Methodology

Researcher must be very careful in using secondary data. He must make a minute scrutiny
because it is just possible that the secondary data may be unsuitable or may be inadequate in the
context of the problem which the researcher wants to study. In this connection Dr. A.L. Bowley
very aptly observes that it is never safe to take published statistics at their face value without
knowing their meaning and limitations and it is always necessary to criticise arguments that can
be based on them.
By way of caution, the researcher, before using secondary data, must see that they possess
following characteristics:

1. Reliability of data: The reliability can be tested by finding out such things about the said
data: (a) Who collected the data? (b) What were the sources of data? (c) Were they
collected by using proper methods (d) At what time were they collected?(e) Was there
any bias of the compiler? (t) What level of accuracy was desired? Was it achieved ?

2. Suitability of data: The data that are suitable for one enquiry may not necessarily be
found suitable in another enquiry. Hence, if the available data are found to be unsuitable,
they should not be used by the researcher. In this context, the researcher must very
carefully scrutinise the definition of various terms and units of collection used at the time
of collecting the data from the primary source originally. Similarly, the object, scope and
 nature of the original enquiry must also be studied. If the researcher finds differences in
these, the data will remain unsuitable for the present enquiry and should not be used.

3. Adequacy of data: If the level of accuracy achieved in data is found inadequate for the
purpose of the present enquiry, they will be considered as inadequate and should not be
used by the researcher. The data will also be considered inadequate, if they are related to
an area which may be either narrower or wider than the area of the present enquiry.
From all this we can say that it is very risky to use the already available data. The already
available data should be used by the researcher only when he finds them reliable, suitable
and adequate. But he should not blindly discard the use of such data if they are readily
available from authentic sources and are also suitable and adequate for in that case it will
not be economical to spend time and energy in field surveys for collecting information.
At times, there may be wealth of usable information in the already available data which
must be used by an intelligent researcher but with due precaution.

Secondary Research Methods with Examples

Secondary research is cost effective and that’s one of the reasons that makes it a popular choice
among a lot of businesses and organizations. Not every organization is able to pay huge sum of
money to conduct research and gather data. So, rightly secondary research is also termed as
“desk research”, as data can be retrieved from sitting behind a desk.

Following are popularly used secondary research methods and examples:

1. Data available on the internet: One of the most popular ways of collecting secondary data is
using the internet. Data is readily available on the internet and can be downloaded at the click of
a button.

This data is practically free of cost or one may have to pay a negligible amount to download the
already existing data. Websites have a lot of information that businesses or organizations can use
to suit their research needs. However, organizations need to consider only authentic and trusted
website to collect information.

2. Government and nongovernment agencies: Data for secondary research can also be
collected from some government and non-government agencies. For example, US Government
Printing Office, US Census Bureau, and Small Business Development Centers have valuable and
relevant data that businesses or organizations can use.

There is a certain cost applicable to download or use data available with these agencies. Data
obtained from these agencies are authentic and trustworthy.

3. Public libraries: Public libraries are another good source to search for data for secondary
research. Public libraries have copies of important research that were conducted earlier. They are
a storehouse of important information and documents from which information can be extracted.

The services provided in these public libraries vary from one library to another. More often,
libraries have a huge collection of government publications with market statistics, large
collection of business directories and newsletters.

4. Educational Institutions: Importance of collecting data from educational institutions for

secondary research is often overlooked. However, more research is conducted in colleges and
universities than any other business sector.

The data that is collected by universities is mainly for primary research. However, businesses or
organizations can approach educational institutions and request for data from them.

5. Commercial information sources: Local newspapers, journals, magazines, radio and TV

stations are a great source to obtain data for secondary research. These commercial information
sources have first-hand information on economic developments, political agenda, market
research, demographic segmentation and similar subjects.

Businesses or organizations can request to obtain data that is most relevant to their study.
Businesses not only have the opportunity to identify their prospective clients but can also know
about the avenues to promote their products or services through these sources as they have a
wider reach.

Key Differences between Primary Research and Secondary Research

Primary Research Secondary Research

Research is conducted first hand to obtain Research is based on data collected from
data. Researcher “owns” the data collected. previous researches.

Secondary research is based on tried and

Primary research is based on raw data. tested data which is previously analyzed and
filtered.

The data collected fits the needs of a

researcher, it is customized. Data is collected Data may or may not be according to the
based on the absolute needs of organizations requirement of a researcher.
or businesses.

As opposed to primary research, secondary

Researcher is deeply involved in research to
research is fast and easy. It aims at gaining a
collect data in primary research.
broader understanding of subject matter.

Primary research is an expensive process and Secondary research is a quick process as data
consumes a lot of time to collect and analyze is already available. Researcher should know
data. where to explore to get most appropriate data.

How to conduct Secondary Research?

Here are the steps involved in conducting secondary research:

1. Identify the topic of research: Before beginning secondary research, identify the topic that
needs research. Once that’s done, list down the research attributes and its purpose.

2. Identify research sources: Next, narrow down on the information sources that will provide
most relevant data and information applicable to your research.
3. Collect existing data: Once the data collection sources are narrowed down, check for any
previous data that is available which is closely related to the topic. Data related to research can
be obtained from various sources like newspapers, public libraries, government and non-
government agencies etc.

4. Combine and compare: Once data is collected, combine and compare the data for any
duplication and assemble data into a usable format. Make sure to collect data from authentic
sources. Incorrect data can hamper research severely.

4. Analyze data: Analyze data that is collected and identify if all questions are answered. If not,
repeat the process if there is a need to dwell further into actionable insights.

Advantages of Secondary Research

1. Most information is secondary research is readily available. There are many sources from
which relevant data can be collected and used, unlike primary research, where data needs to
collect from scratch.

2. This is a less expensive and less time-consuming process as data required is easily available
and doesn’t cost much if extracted from authentic sources. A minimum expenditure is associated
to obtain data.

3. The data that is collected through secondary research, gives organizations or businesses an
idea about the effectiveness of primary research. Hence, organizations or businesses can form a
hypothesis and evaluate cost of conducting primary research.

4. Secondary research is quicker to conduct because of availability of data. Secondary research

can be completed within a few weeks depending on the objective of businesses or scale of data
needed.
Disadvantages of Secondary Research

1. Although data is readily available, credibility evaluation must be performed to understand the
authenticity of the information available.

2. Not all secondary data resources offer the latest reports and statistics. Even when the data is
accurate, it may not be updated enough to accommodate recent timelines.

3. Secondary research derives its conclusion from collective primary research data. The success
of your research will depend, to a greater extent, on the quality of research already conducted by
primary research.

Chapter:4 Analysis of Data

Introduction: Mutual Fund

A mutual fund is a type of financial vehicle made up of a pool of money collected from
many investors to invest in securities like stocks, bonds, money market instruments,
and other assets. Mutual funds are operated by professional money managers, who
allocate the fund's assets and attempt to produce capital gains or income for the fund's
investors. A mutual fund's portfolio is structured and maintained to match the investment
objectives stated in its prospectus.

Mutual funds give small or individual investors access to professionally managed

portfolios of equities, bonds, and other securities. Each shareholder, therefore,
participates proportionally in the gains or losses of the fund. Mutual funds invest in a
vast number of securities, and performance is usually tracked as the change in the
total market cap of the fund—derived by the aggregating performance of the underlying
investments.

 A mutual fund is a type of investment vehicle consisting of a portfolio of stocks,

bonds, or other securities.
 Mutual funds give small or individual investors access to diversified,
professionally managed portfolios at a low price.
 Mutual funds are divided into several kinds of categories, representing the kinds
of securities they invest in, their investment objectives, and the type of returns
they seek.
 Mutual funds charge annual fees (called expense ratios) and, in some cases,
commissions, which can affect their overall returns.
  The overwhelming majority of money in employer-sponsored retirement plans
goes into mutual funds.

Understanding Mutual Funds

Mutual funds pool money from the investing public and use that money to buy other
securities, usually stocks and bonds. The value of the mutual fund company depends
on the performance of the securities it decides to buy. So, when you buy a unit or share
of a mutual fund, you are buying the performance of its portfolio or, more precisely, a
part of the portfolio's value. Investing in a share of a mutual fund is different from
investing in shares of stock. Unlike stock, mutual fund shares do not give its holders
any voting rights. A share of a mutual fund represents investments in many different
stocks (or other securities) instead of just one holding.

That's why the price of a mutual fund share is referred to as the net asset value
(NAV) per share, sometimes expressed as NAVPS. A fund's NAV is derived by dividing
the total value of the securities in the portfolio by the total amount of shares outstanding.
Outstanding shares are those held by all shareholders, institutional investors, and
company officers or insiders. Mutual fund shares can typically be purchased or
redeemed as needed at the fund's current NAV, which—unlike a stock price—doesn't
fluctuate during market hours, but it is settled at the end of each trading day.

The average mutual fund holds hundreds of different securities, which means mutual
fund shareholders gain important diversification at a low price. Consider an investor who
buys only Google stock before the company has a bad quarter. He stands to lose a
great deal of value because all of his dollars are tied to one company. On the other
hand, a different investor may buy shares of a mutual fund that happens to own some
Google stock. When Google has a bad quarter, she loses significantly less because
Google is just a small part of the fund's portfolio.

How Mutual Funds Work.

A mutual fund is both an investment and an actual company. This dual nature may
seem strange, but it is no different from how a share of AAPL is a representation of
Apple Inc. When an investor buys Apple stock, he is buying partial ownership of the
company and its assets. Similarly, a mutual fund investor is buying partial ownership of
the mutual fund company and its assets. The difference is that Apple is in the business
of making smartphones and tablets, while a mutual fund company is in the business of
making investments.

Investors typically earn a return from a mutual fund in three ways:

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

If a mutual fund is construed as a virtual company, its CEO is the fund manager,
sometimes called its investment adviser. The fund manager is hired by a board of
directors and is legally obligated to work in the best interest of mutual fund
shareholders. Most fund managers are also owners of the fund. There are very few
other employees in a mutual fund company. The investment adviser or fund manager
may employ some analysts to help pick investments or perform market research. A fund
accountant is kept on staff to calculate the fund's NAV, the daily value of the portfolio
that determines if share prices go up or down. Mutual funds need to have a compliance
officer or two, and probably an attorney, to keep up with government regulations.

Most mutual funds are part of a much larger investment company; the biggest have
hundreds of separate mutual funds. Some of these fund companies are names familiar
to the general public, such as Fidelity Investments, The Vanguard Group, T. Rowe
Price, and Oppenheimer Funds.

Types of Mutual Funds

Mutual funds are divided into several kinds of categories, representing the kinds of
securities they have targeted for their portfolios and the type of returns they seek. There
is a fund for nearly every type of investor or investment approach. Other common types
of mutual funds include money market funds, sector funds, alternative funds, smart-beta
funds, target-date funds, and even funds-of-funds, or mutual funds that buy shares of
other mutual funds.

Equity Funds
The largest category is that of equity or stock funds. As the name implies, this sort of
fund invests principally in stocks. Within this group are various subcategories. Some
equity funds are named for the size of the companies they invest in: small-, mid-, or
large-cap. Others are named by their investment approach: aggressive growth, income-
oriented, value, and others. Equity funds are also categorized by whether they invest in
domestic (U.S.) stocks or foreign equities. There are so many different types of equity
funds because there are many different types of equities. A great way to understand the
universe of equity funds is to use a style box, an example of which is below.

The idea here is to classify funds based on both the size of the companies invested in
(their market caps) and the growth prospects of the invested stocks. The term value
fund refers to a style of investing that looks for high-quality, low-growth companies that
are out of favor with the market. These companies are characterized by low price-to-
earnings (P/E) ratios, low price-to-book (P/B) ratios, and high dividend yields.
Conversely, spectrums are growth funds, which look to companies that have had (and
are expected to have) strong growth in earnings, sales, and cash flows. These
companies typically have high P/E ratios and do not pay dividends. A compromise
between strict value and growth investment is a "blend," which simply refers to
companies that are neither value nor growth stocks and are classified as being
somewhere in the middle.

The other dimension of the style box has to do with the size of the companies that a
mutual fund invests in. Large-cap companies have high market capitalizations, with
values over $5 billion. Market cap is derived by multiplying the share price by the
number of shares outstanding. Large-cap stocks are typically blue chip firms that are
often recognizable by name. Small-cap stocks refer to those stocks with a market cap
ranging from $200 million to $2 billion. These smaller companies tend to be newer,
riskier investments. Mid-cap stocks fill in the gap between small- and large-cap.

A mutual fund may blend its strategy between investment style and company size. For
example, a large-cap value fund would look to large-cap companies that are in strong
financial shape but have recently seen their share prices fall and would be placed in the
upper left quadrant of the style box (large and value). The opposite of this would be a
fund that invests in startup technology companies with excellent growth prospects:
small-cap growth. Such a mutual fund would reside in the bottom right quadrant (small
and growth).

Fixed-Income Funds
Another big group is the fixed income category. A fixed-income mutual fund focuses on
investments that pay a set rate of return, such as government bonds, corporate bonds,
or other debt instruments. The idea is that the fund portfolio generates interest income,
which it then passes on to the shareholders.

Sometimes referred to as bond funds, these funds are often actively managed and seek
to buy relatively undervalued bonds in order to sell them at a profit. These mutual funds
are likely to pay higher returns than certificates of deposit and money market
investments, but bond funds aren't without risk. Because there are many different types
of bonds, bond funds can vary dramatically depending on where they invest. For
example, a fund specializing in high-yield junk bonds is much riskier than a fund that
invests in government securities. Furthermore, nearly all bond funds are subject
to interest rate risk, which means that if rates go up, the value of the fund goes down.

Index Funds
Another group, which has become extremely popular in the last few years, falls under
the moniker "index funds." Their investment strategy is based on the belief that it is very
hard, and often expensive, to try to beat the market consistently. So, the index fund
manager buys stocks that correspond with a major market index such as the S&P 500
or the Dow Jones Industrial Average (DJIA). This strategy requires less research from
analysts and advisors, so there are fewer expenses to eat up returns before they are
passed on to shareholders. These funds are often designed with cost-sensitive
investors in mind.

Balanced Funds
Balanced funds invest in both stocks and bonds to reduce the risk of exposure to one
asset class or another. Another name for this type of mutual fund is "asset allocation
fund." An investor may expect to find the allocation of these funds among asset
classes relatively unchanging, though it will differ among funds. This fund's goal is asset
appreciation with lower risk. However, these funds carry the same risk and can be as
subject to fluctuation as other classifications of funds.

A similar type of fund is known as an asset allocation fund. Objectives are similar to
those of a balanced fund, but these kinds of funds typically do not have to hold a
specified percentage of any asset class. The portfolio manager is therefore given
freedom to switch the ratio of asset classes as the economy moves through the
business cycle.

Money Market Funds

The money market consists of safe (risk-free), short-term debt instruments, mostly
government Treasury bills. This is a safe place to park your money. You won't get
substantial returns, but you won't have to worry about losing your principal. A typical
return is a little more than the amount you would earn in a regular checking or savings
account and a little less than the average certificate of deposit (CD). While money
market funds invest in ultra-safe assets, during the 2008 financial crisis, some money
market funds did experience losses after the share price of these funds, typically
pegged at $1, fell below that level and broke the buck.

Income Funds
Income funds are named for their purpose: to provide current income on a steady basis.
These funds invest primarily in government and high-quality corporate debt, holding
these bonds until maturity in order to provide interest streams. While fund holdings may
appreciate in value, the primary objective of these funds is to provide steady cash flow
to investors. As such, the audience for these funds consists of conservative investors
and retirees. Because they produce regular income, tax-conscious investors may want
to avoid these funds.

International/Global Funds
An international fund (or foreign fund) invests only in assets located outside your home
country. Global funds, meanwhile, can invest anywhere around the world, including
within your home country. It's tough to classify these funds as either riskier or safer than
domestic investments, but they have tended to be more volatile and have unique
country and political risks. On the flip side, they can, as part of a well-balanced portfolio,
actually reduce risk by increasing diversification, since the returns in foreign countries
may be uncorrelated with returns at home. Although the world's economies are
becoming more interrelated, it is still likely that another economy somewhere is
outperforming the economy of your home country.

Specialty Funds
This classification of mutual funds is more of an all-encompassing category that
consists of funds that have proved to be popular but don't necessarily belong to the
more rigid categories we've described so far. These types of mutual funds forgo broad
diversification to concentrate on a certain segment of the economy or a targeted
strategy. Sector funds are targeted strategy funds aimed at specific sectors of the
economy, such as financial, technology, health, and so on. Sector funds can, therefore,
be extremely volatile since the stocks in a given sector tend to be highly correlated with
each other. There is a greater possibility for large gains, but a sector may also collapse
(for example, the financial sector in 2008 and 2009).

Regional funds make it easier to focus on a specific geographic area of the world. This
can mean focusing on a broader region (say Latin America) or an individual country (for
example, only Brazil). An advantage of these funds is that they make it easier to buy
stock in foreign countries, which can otherwise be difficult and expensive. Just like for
sector funds, you have to accept the high risk of loss, which occurs if the region goes
into a bad recession.

Socially-responsible funds (or ethical funds) invest only in companies that meet the
criteria of certain guidelines or beliefs. For example, some socially-responsible funds do
not invest in "sin" industries such as tobacco, alcoholic beverages, weapons, or nuclear
power. The idea is to get competitive performance while still maintaining a healthy
conscience. Other such funds invest primarily in green technology, such as solar and
wind power or recycling.

Exchange Traded Funds (ETFs)

A twist on the mutual fund is the exchange traded fund (ETF). These ever more popular
investment vehicles pool investments and employ strategies consistent with mutual
funds, but they are structured as investment trusts that are traded on stock exchanges
and have the added benefits of the features of stocks. For example, ETFs can be
bought and sold at any point throughout the trading day. ETFs can also be sold short or
purchased on margin. ETFs also typically carry lower fees than the equivalent mutual
fund. Many ETFs also benefit from active options markets, where investors
can hedge or leverage their positions. ETFs also enjoy tax advantages from mutual
funds. The popularity of ETFs speaks to their versatility and convenience.

Mutual Fund Fees

A mutual fund will classify expenses into either annual operating fees or shareholder
fees. Annual fund operating fees are an annual percentage of the funds under
management, usually ranging from 1–3%. Annual operating fees are collectively known
as the expense ratio. A fund's expense ratio is the summation of the advisory or
management fee and its administrative costs.

Shareholder fees, which come in the form of sales charges, commissions, and
redemption fees, are paid directly by investors when purchasing or selling the funds.
Sales charges or commissions are known as "the load" of a mutual fund. When a
mutual fund has a front-end load, fees are assessed when shares are purchased. For a
back-end load, mutual fund fees are assessed when an investor sells his shares.

Sometimes, however, an investment company offers a no-load mutual fund, which

doesn't carry any commission or sales charge. These funds are distributed directly by
an investment company, rather than through a secondary party.

Some funds also charge fees and penalties for early withdrawals or selling the holding
before a specific time has elapsed. Also, the rise of exchange-traded funds, which have
much lower fees thanks to their passive management structure, have been giving
mutual funds considerable competition for investors' dollars. Articles from financial
media outlets regarding how fund expense ratios and loads can eat into rates of return
have also stirred negative feelings about mutual funds.

Classes of Mutual Fund Shares

Mutual fund shares come in several classes. Their differences reflect the number and
size of fees associated with them.

Currently, most individual investors purchase mutual funds with A shares through a
broker. This purchase includes a front-end load of up to 5% or more, plus management
fees and ongoing fees for distributions, also known as 12b-1 fees. To top it off, loads on
A shares vary quite a bit, which can create a conflict of interest. Financial advisors
selling these products may encourage clients to buy higher-load offerings to bring in
bigger commissions for themselves. With front-end funds, the investor pays these
expenses as they buy into the fund.

To remedy these problems and meet fiduciary-rule standards, investment companies

have started designating new share classes, including "level load" C shares, which
generally don't have a front-end load but carry a 1% 12b-1 annual distribution fee.

Funds that charge management and other fees when an investor sell their holdings are
classified as Class B shares.

A New Class of Fund Shares

The newest share class, developed in 2016, consists of clean shares. Clean shares do
not have front-end sales loads or annual 12b-1 fees for fund services. American Funds,
Janus, and MFS are all fund companies currently offering clean shares.
By standardizing fees and loads, the new classes enhance transparency for mutual fund
investors and, of course, save them money. For example, an investor who rolls $10,000
into an individual retirement account (IRA) with a clean-share fund could earn nearly
$1,800 more over a 30-year period as compared to an average A-share fund, according
to an April 2017 Morningstar report co-written by Aron Szapiro, Morningstar director of
policy research, and Paul Ellenbogen, head of global regulatory solutions.

Chapter:5 Findings & Suggestion

The past decade through fiscal 2018, India’s mutual fund industry has grown at twice the pace of
its global peers. The ratio of the industry’s assets under management (AUM) to bank deposits
has grown from 13% as of March 2016 to 22% as of March 2018. Monthly SIP contributions and
accounts have trebled in the past two years, which suggests more people are following the
disciplined investment approach that the mutual funds industry has been advocating for long.
Good part is, this growth has not been just an urban phenomena. Assets under management from
cities beyond the top 15 (B15) have grown at 32% annualised since 2014. Encouraged by the
regulator, the industry has also been adopting best practices, and improving transparencies such
as through re-categorisation of schemes, daily disclosure on total expense ratio, and uniform and
timely publication of data. That said, individual participation remains concentrated in equity
funds, though debt-oriented funds are also attractive and efficient, allowing investments across
the rating spectrum. Their importance as a source of funding can’t be overstated, especially
because CRISIL’s estimates show India needs to spend Rs 56 trillion to build out infrastructure
in the five fiscals to 2023. Another salutary development is increasing digitalisation and
technology adoption enhancing investor convenience. The government and the regulator have
played a part in this, especially through their financial inclusion efforts. Consequently, money
entering mutual fund schemes through the digital route has multiplied from ~0.5% of gross
inflows two years back to ~10% in June 2018. I believe technology will continue to play a major
role in the industry’s growth and improve investor access to the capital market. CRISIL has had
the privilege of being associated with India’s mutual fund industry and the capital market for
over 3 decades now. Our analytics and solutions, including the CRISIL Mutual Fund Ranking
and benchmarks for the debt markets, are widely followed and are a critical input to decision
making. We are honoured to partner with AMFI again for the second annual edition

The equity markets may have hogged the limelight of late, but there is also a large parallel
market of fixed income securities that has logged a healthy 13% annualised growth in the past
five years. Thus, aside from equity, investors have an opportunity to partake of growth in the
debt market too. That said, most investors might not have the wherewithal to tap the debt market
on their own, given the complexities and ticket sizes involved. For such investors, mutual funds
– which invest across the product and rating spectrum in the market, and are also professionally
managed – are a good option.

For investors, it simplifies the fund selection and investment process by introducing better
nomenclature and clear-cut demarcation between different categories. Since funds in the same
category will play along the same asset allocation pattern, there is a common platform to judge
the performance of funds before making investment decisions. Investors should, however, note
that their could be volatility or realignment of schemes they are currently invested in. Rather than
panic, they should check if the reclassified schemes in their portfolio are aligned to their
investment goals and risk-return expectations and decide accordingly. For the industry, on the
other hand, the results of peer group comparison will be more transparent, ensuring greater
surety when undertaking comparisons. It also gives clarity and a level of comfort to the asset
managers to follow a set of guidelines in identifying securities.

Addditionally, it sets the practice of managing the portfolio and generating alpha based on not
just market capitalisation but also differentiated stock selection and individual capability

The first objective of the investors is to save and beat inflation. Majority of them also want to
save tax and increase their wealth. 2. Majority of the investors are able to save between 20 to
35% out of their total earnings 3. Out of total mutual fund investors under the study still there
are some who are not aware about mutual funds and they have invested in Mutual Funds on
the advice of others. 4. Banks and Insurance are being preferred as choice no.1 and 2
respectively. Mutual funds are preferred at 3 no. by majority of investors. 5.Balance funds
and Tax relief schemes are most preferred schemes among the respondents. 6. SIP mode is
the preferred mode among respondents. 7. Investment through offline is still adopted by most
of the mutual funds investors.
Chapter:6 Conclusion

Mutual funds are a popular investment avenue among investors, as they are easy
to invest in and give higher returns as compared to other traditional asset classes
such as FDs or saving bank deposits. At the same time, portfolio diversification
techniques as well as availability of the options of SIP, STP and SWP make them a
viable investment instrument. Further, you are not required to proactively
monitor your stocks, as your fund manager does the task for you. As a result,
mutual funds have become a much sought after investment avenue today with
record investments in the recent months. If you have still not invested in mutual
funds, make your investments soon. Happy investing!
Chapter:7 Biblography

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