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A COMPARATIVE STUDY OF SECTORAL INDICES AND MUTUAL FUND SECTORAL SCHEMES AND ANALYSIS OF INVESTMENT BEHAVIOUR OF CONSUMERS

GRAND PROJECT REPORT SUBMITTED TO

AES POST GRDAUATE INSTITUTE OF BUSINESS MANAGEMENT GUJARAT UNIVERSITY

UNDER THE GUIDANCE OF

Submitted by:
HARSHIL GANDHAKWALA AKSHIT GANDHI

PROF. FALGUNI PANDYA

Certificate
This is to certify that Mr. Harshil Gandhakwala and Mr.Akshit Gandhi (Students of AES Post Graduate Institute of Business Management, Gujarat University) has successfully completed their Grand Project on A comparative study of sectoral

indices and Mutual Fund Sectoral Schemes and analysis of Investment behaviour of Consumers toward the partial fulfillment of the M.B.A. program
( Batch 2007-2009) and submitted the Project Report.

___________________

Prof. Falguni Pandya

(Project Guide)

Date :

Acknowledgment
We are indebted to Dr. A.H.Kalro, Director of AESPGIBM., for providing an opportunity of preparing A Comparative study of and mutual fund sectoral scheme and allowing us to use the resources of the institution during this project.

We are extremely thankful to our Project Guide Prof. Falguni Pandya for her precious guidance regarding the preparation format of the project report. Her guidance has proved to be very useful and without which the preparation of this report might not had been possible.

We are also thankful to the other faculty members of the AESPGIBM for extending their valuable support for this project.

Finally we would also like to thank our family members, who are always a source for inspiration for us, for showing their understanding, patience and for all their possible help for the preparation of this project.

HARSHIL GANDHAKWALA AKSHIT GANDHI

PREFACE
India is one of the fastest growing economies in the world due to which the income level of people in India is increasing and along with it the savings and investments are also growing. Due to liberalization and deregulation which was announced in New Industrial Policy 1991, has dismantled barriers in the financial market, allowed the entry of new players and created environment for efficient allocation of resources. One of the important industries in emerging financial market is the mutual fund industry.

The mutual fund industry has played a significant role in the development of capital market, growth of corporate sectors and financial intermediation. As mutual fund industry in India is relatively new, the level of awareness among the people is less but with the increase in level of awareness the mutual fund industry is also growing. The government has also announced the regulatory measures for the growth of mutual fund industry and protection of investors in mutual funds. Here we have attempted to study mutual fund industry in India, comparison of mutual fund companies and schemes offered by them and investment behavior of consumers.

EXECUTIVE SUMMARY
The Indian mutual fund industry came into existence with the establishment of Unit Trust of India in 1964. Unit Trust of India was not efficient enough to expand the mutual fund market. In late 1980s nationalized bank sponsored mutual funds came into existence which helped mutual fund industry to expand its market.

The private sector mutual fund entered the industry during early 1990s with greater variety of products and better services. They introduced different kinds of products satisfying the needs of the different classes of investors.

The major limitation of mutual fund industry in India is the lack of awareness among the investors. Most of the investors are not at all aware about what is mutual fund? How it functions? How money collected from investors are invested, etc against which in America more than eighty million people or one half of the households invest in mutual funds. That means that, in the United States alone, trillions of dollars are invested in mutual funds.

Mutual fund industry depends on gaining the trust of investors. Once the investors trust is gained it is easy to convince them to invest in mutual funds. The investors are attracted based on the performance of the mutual funds rather than winning the trust of investors. The performance of mutual funds is variable, sometimes it may go up and sometimes it may come down. It is also not sure that the past performance will be repeated in the current period. Still the investors are attracted based on the past performance of mutual funds. The Indian mutual fund industry should come out of this limitation. They should try to attract the investors by gaining their trust rather than showing the past performance of mutual funds.

Most of the investors are not aware about the professional fund managers of the mutual funds. They invest in the mutual funds based of the returns which mutual fund yields. The investors are not aware that the fund managers of mutual funds do systematic

analysis of the companies in which they are going to invest; they give suggestions to the companies which are not performing well. Therefore the mutual fund industry should try to promote about their professional fund managers, which would help the industry to attract the investors and expand its market.

The mutual fund industry in India is still in the developing stage. Many of the mutual fund companies are presently functioning in the urban area, but in country like India where the substantial part of total population lives in the rural area, also the mutual fund companies needs to expand their business in the unexplored rural areas which will lead to the substantial increase in the total amount which is invested in mutual funds.

The basic functioning of mutual fund depends on the equity and debt market. The portfolio of different mutual funds companies constitutes of the investments in any of these markets depending upon the type and scheme of mutual fund.

Whenever any of the above mentioned market goes down the respective fund is affected. For example if the market has gone down by 30% but the mutual funds NAV has gone down only by 10% than the investor should understand that the fund manager of such scheme is really efficient. But rather than having such a long view the investors thought is limited to short run and they think that the scheme in which they have invested is not good and they withdraw their money by incurring losses which is one of the major limitation of the investors investing in mutual funds, which the mutual fund company must try to overcome by increasing the awareness regarding the basic functioning of mutual funds and making the customers aware regarding the difference between the absolute and relative returns.

INDEX
SR.NO. 1. SUBJECT
MUTUAL FUND : AN OVERVIEW INTRODUCTION DEFINITION HISTORY OF MUTUAL FUND CONCEPT WHAT IS NAV? TYPES OF MUTUAL FUND AMFI MERITS OF MUTUAL FUND DEMARITS OF MUTUAL FUND HOW TO OVERCOME FROM DEMARITS? PAGE NO.

9 10 13 14 17 19 21 24 26 28 30 31 33 35 36 40 41 42 55 40 67

2.

STRUCTURE OF MUTUAL FUND * SOME OF THE PRESENT AMC * BANK V/S MUTUAL FUND * REGULATORY ASPECTS * FUTURE TREND

3.

RATIONAL OF THE STUDY * OBJECT OF PRIMARY STUDY * OBJECT OF SECONDARY STUDY

4. 5.

DATA ANALYSIS AND INTERPRETATION PORTERS FIVEFORCE MODEL

6. 7. 8. 9.

SWOT ANALYSIS CONCLUSION BIBILIOGRAPHY ANNEXURE

71 75 77 79

CHAPTER 1 MUTUAL FUND : AN OVERVIEW

INTRODUCTION
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by them (pro rata). Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy. A mutual fund is the ideal investment vehicle for todays complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual also finds it difficult to keep track of ownership of his assets, investments, brokerage dues and bank transactions etc. A mutual fund is the answer to all these situations. It appoints professionally qualified and experienced staff that manages each of these functions on a full time basis. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas research, investments and transaction processing. While the concept of individuals coming together to invest money collectively is not new, the mutual fund in its present form is a 20th century phenomenon. In fact, mutual funds gained popularity only after the Second World War. Globally, there are thousands of firms offering tens of thousands of

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mutual funds with different investment objectives. Today, mutual funds collectively manage almost as much as or more money as compared to banks. A draft offer document is to be prepared at the time of launching the fund. Typically, it pre specifies the investment objectives of the fund, the risk associated, the costs involved in the process and the broad rules for entry into and exit from the fund and other areas of operation. In India, as in most countries, these sponsors need approval from a regulator, SEBI (Securities exchange Board of India) in our case. SEBI looks at track records of the sponsor and its financial strength in granting approval to the fund for commencing operations. A sponsor then hires an asset management company to invest the funds according to the investment objective. It also hires another entity to be the custodian of the assets of the fund and perhaps a third one to handle registry work for the unit holders (subscribers) of the fund. In the Indian context, the sponsors promote the Asset Management Company also, in which it holds a majority stake. In many cases a sponsor can hold a 100% stake in the Asset Management Company (AMC). E.g. Birla Global Finance is the sponsor of the Birla Sun Life Asset Management Company Ltd., which has floated different mutual funds schemes and also acts as an asset manager for the funds collected under the schemes.

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DEFINITION
A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of a mutual fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the holdings of the fund. You can make money from a mutual fund in three ways: 1) Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution. 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. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.

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History of Mutual Funds in India

The end of millennium marks 36 years of existence of mutual funds in this country. The ride through these 36 years is not been smooth. Investor opinion is still divided. While some are for mutual funds others are against it. UTI commenced its operations from July 1964 .The impetus for establishing a formal institution came from the desire to increase the propensity of the middle and lower groups to save and to invest. UTI came into existence during a period marked by great political and economic uncertainty in India. With war on the borders and economic turmoil that depressed the financial market, entrepreneurs were hesitant to enter capital market. The already existing companies found it difficult to raise fresh capital, as investors did not respond adequately to new issues. Earnest efforts were required to canalize savings of the community into productive uses in order to speed up the process of industrial growth. The then Finance Minister, T.T. Krishnamachari set up the idea of a unit trust that would be "open to any person or institution to purchase the units offered by the trust. However, this institution as we see it, is intended to cater to the needs of individual investors, and even among them as far as possible, to those whose means are small." His ideas took the form of the Unit Trust of India, an intermediary that would help fulfill the twin objectives of mobilizing retail savings and investing those savings in the capital market and passing on the benefits so accrued to the small investors. UTI commenced its operations from July 1964 "with a view to encouraging savings and investment and participation in the income, profits and gains accruing to the Corporation from the acquisition, holding, management and disposal of securities." Different provisions of the UTI Act laid down the structure of management, scope of business, powers and functions of the Trust as well as accounting, disclosures and regulatory requirements for the Trust.

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One thing is certain the fund industry is here to stay. The industry was one-entity show till 1986 when the UTI monopoly was broken when SBI and Canbank mutual fund entered the arena. This was followed by the entry of others like BOI, LIC, GIC, etc. sponsored by public sector banks. Starting with an asset base of Rs0.25bn in 1964 the industry has grown at a compounded average growth rate of 26.34% to its current size of Rs1130bn. The period 1986-1993 can be termed as the period of public sector mutual funds (PMFs). From one player in 1985 the number increased to 8 in 1993. The party did not last long. When the private sector made its debut in 1993-94, the stock market was booming. The openings up of the asset management business to private sector in 1993 saw international players like Morgan Stanley, Jardine Fleming, JP Morgan, George Soros and Capital International along with the host of domestic players join the party. But for the equity funds, the period of 1994-96 was one of the worst in the history of Indian Mutual Funds. 1999-2000 Year of the funds Mutual funds have been around for a long period of time to be precise for 36 yrs but the year 1999 saw immense future potential and developments in this sector. This year signaled the year of resurgence of mutual funds and the regaining of investor confidence in these MFs. This time around all the participants are involved in the revival of the funds ----- the AMCs, the unit holders, the other related parties. However the sole factor that gave life to the revival of the funds was the Union Budget. The budget brought about a large number of changes in one stroke. An insight of the Union Budget on mutual funds taxation benefits is provided later. It provided centre stage to the mutual funds, made them more attractive and provides acceptability among the investors. The Union Budget exempted mutual fund dividend given out by equity-oriented schemes from tax, both at the hands of the investor as well as the mutual fund. No longer were the mutual funds interested in selling the concept of mutual funds they wanted to talk business which would mean to increase asset base, and

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to get asset base and investor base they had to be fully armed with a whole lot of schemes for every investor .So new schemes for new IPOs were inevitable. The quest to attract investors extended beyond just new schemes. The funds started to regulate themselves and were all out on winning the trust and confidence of the investors under the aegis of the Association of Mutual Funds of India (AMFI) One can say that the industry is moving from infancy to adolescence, the industry is maturing and the investors and funds are frankly and openly discussing difficulties opportunities and compulsions.

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CONCEPT
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:

Mutual Fund Operation Flow Chart

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ORGANISATION OF A MUTUAL FUND

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NET ASSET VALUE (NAV)

The net asset value of the fund is the cumulative market value of the assets fund net of its liabilities. In other words, if the fund is dissolved or liquidated, by selling off all the assets in the fund, this is the amount that the shareholders would collectively own. This gives rise to the concept of net asset value per unit, which is the value, represented by the ownership of one unit in the fund. It is calculated simply by dividing the net asset value of the fund by the number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring the "per unit". We also abide by the same convention. Calculation of NAV The most important part of the calculation is the valuation of the assets owned by the fund. Once it is calculated, the NAV is simply the net value of assets divided by the number of units outstanding. The detailed methodology for the calculation of the asset value is given below. Asset value is equal to Sum of market value of shares/debentures + Liquid assets/cash held, if any + Dividends/interest accrued Amount due on unpaid assets Expenses accrued but not paid

Details on the above items For liquid shares/debentures, valuation is done on the basis of the last or closing market price on the principal exchange where the security is traded. For illiquid and unlisted and/or thinly traded shares/debentures, the value has to be estimated. For shares, this could be the book value per share or an estimated market price if suitable benchmarks are available. For debentures and bonds, value is estimated on the 19

basis of yields of comparable liquid securities after adjusting for illiquidity. The value of fixed interest bearing securities moves in a direction opposite to interest rate changes Valuation of debentures and bonds is a big problem since most of them are unlisted and thinly traded. This gives considerable leeway to the AMCs on valuation and some of the AMCs are believed to take advantage of this and adopt flexible valuation policies depending on the situation. Interest is payable on debentures/bonds on a periodic basis say every 6 months. But, with every passing day, interest is said to be accrued, at the daily interest rate, which is calculated by dividing the periodic interest payment with the number of days in each period. Thus, accrued interest on a particular day is equal to the daily interest rate multiplied by the number of days since the last interest payment date. Usually, dividends are proposed at the time of the Annual General meeting and become due on the record date. There is a gap between the dates on which it becomes due and the actual payment date. In the intermediate period, it is deemed to be "accrued". Expenses including management fees, custody charges etc. are calculated on a daily basis.

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TYPES OF MUTUAL FUND

Mutual fund schemes may be classified on the basis of its structure and its investment objective.

By Structure: Open-ended Funds An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. Closed-ended Funds A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. Interval Funds Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices. By Investment Objective: Growth Funds The aim of growth funds is to provide capital appreciation over the medium to longterm. Such schemes normally invest a majority of their corpus in equities. It has been 21

proven that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time. Income Funds The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income. Balanced Funds The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth. Money Market Funds The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods. Load Funds A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history.

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No-Load Funds A No-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work. Other Schemes: Tax Saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction under Income Tax Act, 1961. Special Schemes

Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG, Pharmaceuticals etc.

Index Schemes

Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50.

Sectoral Schemes

Sectoral Funds are those, which invest exclusively in a specified industry or a group of industries or various segments such as 'A' Group shares or initial public offerings.

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Association of Mutual Funds in India (AMFI)

With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non-profit organisation. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August, 1995.

AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors.

Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders.

The objectives of Association of Mutual Funds in India

The Association of Mutual Funds of India works with 30 registered AMCs of the country. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The objectives are as follows:

This mutual fund association of India maintains a high professional and ethical standards in all areas of operation of the industry.

It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association.

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AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. Association of Mutual Fund of India do represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry.

It develops a team of well-qualified and trained Agent distributors. It implements a programme of training and certification for all intermediaries and other engaged in the mutual fund industry.

AMFI undertakes all India awareness programme for investors in order to promote proper understanding of the concept and working of mutual funds.

At last but not the least association of mutual fund of India also disseminate informations on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies.

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MERITS OF MUTUALFUND INVESTMENT

Professional Management Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. Diversification Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient.

Return Potential Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. Low Costs Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.

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Liquidity In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Transparency One can get regular information on the value of his investment in addition to disclosure on the specific investments made by his scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook. Flexibility Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience. Affordability Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. Mutual Funds offer a family of schemes to suit your varying needs over a lifetime. Well Regulated All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.

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DEMERITS OF MUTUAL FUND INVESTMENT

Professional Management Many investors debate over whether or not the so-called professionals are any better than you or I at picking stocks. Management is by no means infallible, and, even if the fund loses money, the manager still takes his/her cut. Dilution It's possible to have too much diversification. Because funds have small holdings in so many different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. Entry and exit costs Mutual funds are a victim of their own success. When a large body like a fund invests in shares, the concentrated buying or selling often results in adverse price movements ie at the time of buying, the fund ends up paying a higher price and while selling it realizes a lower price. This problem is especially severe in emerging markets like India, where, excluding a few stocks, even the stocks in the Sensex are not liquid, let alone stocks in the NSE 50 or the CRISIL 500. So, there is simply no way that a fund can beat the Sensex or any other index, if it blindly invests in the same stocks as those in the Sensex and in the same proportion. For obvious reasons, this problem is even more severe for funds investing in small capitalization stocks. However, given the large size of the debt market, excluding UTI, most debt funds do not face this problem. Wait time before investment It takes time for a mutual fund to invest money. Unfortunately, most mutual funds receive money when markets are in a boom phase and investors are willing to try out mutual funds. Since it is difficult to invest all funds in one day, there is some money waiting to be invested. Further, there may be a time lag before investment opportunities

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are identified. This ensures that the fund underperforms the index. For open-ended funds, there is the added problem of perpetually keeping some money in liquid assets to meet redemptions. The problem of impracticability of quick investments is likely to be reduced to some extent with the introduction of index futures. Fund management costs The costs of the fund management process are deducted from the fund. This includes marketing and initial costs deducted at the time of entry itself, called "load". Then there is the annual asset management fee and expenses, together called the expense ratio. Usually, the former is not counted while measuring performance, while the latter is. A standard 2% expense ratio means that, everything else being equal, the fund manager underperforms the benchmark index by an equal amount. Cost of churn The portfolio of a fund does not remain constant. The extent to which the portfolio changes is a function of the style of the individual fund manager i.e. whether he is a buy and hold type of manager or one who aggressively churns the fund. It is also dependent on the volatility of the fund size i.e. whether the fund constantly receives fresh subscriptions and redemptions. Such portfolio changes have associated costs of brokerage, custody fees, registration fees etc. which lowers the portfolio return commensurately. Change of index composition World over, the indices keep changing to reflect changing market conditions. There is an inherent survivorship bias in this process, with the bad stocks weeded out and replaced by emerging blue chips. This is a severe problem in India with the Sensex having been changed twice in the last 5 years, with each change being quite substantial. Another reason for change index composition is Mergers & Acquisitions. The weightages of the shares of a particular company in the index changes if it acquires a large company not a part of the index.

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HOW TO OVERCOME FROM DEMARITS OF MUTUAL FUND? Tendency to take conformist decisions From the above points, it is quite clear that the only way a fund can beat the index is through investment of some part of its portfolio in some shares where it gets excellent returns, much more than the index. This will pull up the overall average return. In order to obtain such exceptional returns, the fund manager has to take a strong view and invest in some uncommon or unfancied investment options. Most people are unwilling to do that. They follow the principle "No fund manager ever got fired for investing in Hindustan Lever" i.e. if something goes wrong with an unusual investment, the fund manager will be questioned but if anything goes wrong with the blue chip, then you can always blame it on the "environment" or "uncontrollable factors" knowing fully well that there are many other fund managers who have made the same decision. Unfortunately, if the fund manager does the same thing as several others of his class, chances are that he will produce average results. This does not mean that if a fund manager takes "active" views and invests in heavily researched "uncommon" ideas, the fund will necessarily outperform the index. If the idea does not work, it will result in poor fund performance. But if no such view is taken, there is absolutely no chance that the fund will outperform the index.

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CHAPTER 2 STRUCTURE OF MUTUTAL FUND

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Structure of the Indian mutual fund industry

The Indian mutual fund industry is dominated by the Unit Trust of India which has a total corpus of Rs700bn collected from more than 20 million investors. The UTI has many funds/schemes in all categories ie equity, balanced, income etc with some being openended and some being closed-ended. The Unit Scheme 1964 commonly referred to as US 64, which is a balanced fund, is the biggest scheme with a corpus of about Rs200bn. UTI was floated by financial institutions and is governed by a special act of Parliament. Most of its investors believe that the UTI is government owned and controlled, which, while legally incorrect, is true for all practical purposes. The second largest categories of mutual funds are the ones floated by nationalized banks. Canbank Asset Management floated by Canara Bank and SBI Funds Management floated by the State Bank of India are the largest of these. GIC AMC floated by General Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of the other prominent ones. The aggregate corpus of funds managed by this category of AMCs is about Rs150bn. The third largest categories of mutual funds are the ones floated by the private sector and by foreign asset management companies. The largest of these are Prudential ICICI AMC and Birla Sun Life AMC. The aggregate corpus of assets managed by this category of AMCs is in excess of Rs250bn

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Some of the AMCs operating currently are: Name of the AMC Alliance Capital Asset Management (I) Private Limited Birla Sun Life Asset Management Company Limited Bank of Baroda Asset Management Company Limited Bank of India Asset Management Company Limited Canbank Investment Management Services Limited Nature of ownership Private foreign Private Indian Banks Banks Banks

Cholamandalam Cazenove Asset Management Company Limited Private foreign Dundee Asset Management Company Limited DSP Merrill Lynch Asset Management Company Limited Escorts Asset Management Limited First India Asset Management Limited GIC Asset Management Company Limited IDBI Investment Management Company Limited Indfund Management Limited ING Investment Asset Management Company Private Limited J M Capital Management Limited Jardine Fleming (I) Asset Management Limited Kotak Mahindra Asset Management Company Limited Kothari Pioneer Asset Management Company Limited Jeevan Bima Sahayog Asset Management Company Limited Morgan Stanley Asset Management Company Private Limited Punjab National Bank Asset Management Company Limited Reliance Capital Asset Management Company Limited State Bank of India Funds Management Limited Shriram Asset Management Company Limited Private foreign Private foreign Private Indian Private Indian Institutions Institutions Banks Private foreign Private Indian Private foreign Private Indian Private Indian Institutions Private foreign Banks Private Indian Banks Private Indian

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Sun F and C Asset Management (I) Private Limited Sundaram Newton Asset Management Company Limited Tata Asset Management Company Limited Credit Capital Asset Management Company Limited Templeton Asset Management (India) Private Limited Unit Trust of India Zurich Asset Management Company (I) Limited

Private foreign Private foreign Private Indian Private Indian Private foreign Institutions Private foreign

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Banks v/s Mutual Funds

BANKS Returns Low MUTUAL FUNDS Better Low Moderate More Low but improving Better Transparent

Administrative exp. High Risk Low

Investment options Less Network Liquidity Quality of assets High penetration At a cost Not transparent

Interest calculation Minimum balance between 10th. & 30th. Of every month Everyday Guarantee Maximum Rs.1 lakh on deposits None

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REGULATORY ASPECT
Schemes of a Mutual Fund

The asset management company shall launch no scheme unless the trustees approve such scheme and a copy of the offer document has been filed with the Board.

Every mutual fund shall along with the offer document of each scheme pay filing fees.

The offer document shall contain disclosures which are adequate in order to enable the investors to make informed investment decision including the disclosure on maximum investments proposed to be made by the scheme in the listed securities of the group companies of the sponsor A close-ended scheme shall be fully redeemed at the end of the maturity period. "Unless a majority of the unit holders otherwise decide for its rollover by passing a resolution".

The mutual fund and asset management company shall be liable to refund the application money to the applicants,(i) If the mutual fund fails to receive the minimum subscription amount referred to in clause (a) of subregulation (1); (ii) If the moneys received from the applicants for units are in excess of subscription as referred to in clause (b) of subregulation (1).

The asset management company shall issue to the applicant whose application has been accepted, unit certificates or a statement of accounts specifying the number of units allotted to the applicant as soon as possible but not later than six weeks from the date of closure of the initial subscription list and or from the date of receipt of the request from the unit holders in any open ended scheme.

36

Rules Regarding Advertisement:

The offer document and advertisement materials shall not be misleading or contain any statement or opinion, which are incorrect or false.

Investment Objectives and Valuation Policies:

The price at which the units may be subscribed or sold and the price at which such units may at any time be repurchased by the mutual fund shall be made available to the investors.

General Obligations:

Every asset management company for each scheme shall keep and maintain proper books of accounts, records and documents, for each scheme so as to explain its transactions and to disclose at any point of time the financial position of each scheme and in particular give a true and fair view of the state of affairs of the fund and intimate to the Board the place where such books of accounts, records and documents are maintained.

The financial year for all the schemes shall end as of March 31 of each year. Every mutual fund or the asset management company shall prepare in respect of each financial year an annual report and annual statement of accounts of the schemes and the fund as specified in Eleventh Schedule.

Every mutual fund shall have the annual statement of accounts audited by an auditor who is not in any way associated with the auditor of the asset management company.

37

Procedure for Action In Case Of Default:

On and from the date of the suspension of the certificate or the approval, as the case may be, the mutual fund, trustees or asset management company, shall cease to carry on any activity as a mutual fund, trustee or asset management company, during the period of suspension, and shall be subject to the directions of the Board with regard to any records, documents, or securities that may be in its custody or control, relating to its activities as mutual fund, trustees or asset management company.

Restrictions on Investments:

A mutual fund scheme shall not invest more than 15% of its NAV in debt instruments issued by a single issuer, which are rated not below investment grade by a credit rating agency authorized to carry out such activity under the Act. Such investment limit may be extended to 20% of the NAV of the scheme with the prior approval of the Board of Trustees and the Board of asset Management Company.

A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt instruments issued by a single issuer and the total investment in such instruments shall not exceed 25% of the NAV of the scheme. All such investments shall be made with the prior approval of the Board of Trustees and the Board of asset Management Company.

No mutual fund under all its schemes should own more than ten per cent of any company's paid up capital carrying voting rights.

Such transfers are done at the prevailing market price for quoted instruments on spot basis. The securities so transferred shall be in conformity with the investment objective of the scheme to which such transfer has been made.

A scheme may invest in another scheme under the same asset management company or any other mutual fund without charging any fees, provided that aggregate interscheme investment made by all schemes under the same

38

management or in schemes under the management of any other asset management company shall not exceed 5% of the net asset value of the mutual fund.

The initial issue expenses in respect of any scheme may not exceed six per cent of the funds raised under that scheme.

Every mutual fund shall buy and sell securities on the basis of deliveries and shall in all cases of purchases, take delivery of relative securities and in all cases of sale, deliver the securities and shall in no case put itself in a position whereby it has to make short sale or carry forward transaction or engage in badla finance.

Every mutual fund shall, get the securities purchased or transferred in the name of the mutual fund on account of the concerned scheme, wherever investments are intended to be of long-term nature.

Pending deployment of funds of a scheme in securities in terms of investment objectives of the scheme a mutual fund can invest the funds of the scheme in short term deposits of scheduled commercial banks.

No mutual fund scheme shall make any investment in; i. Any unlisted security of an associate or group company of the sponsor; or ii. Any security issued by way of private placement by an associate or group company of the sponsor; or The listed securities of group companies of the sponsor which is in excess of 30% of the net assets [of all the schemes of a mutual fund]

No mutual fund scheme shall invest more than 10 per cent of its NAV in the equity shares or equity related instruments of any company. Provided that, the limit of 10 per cent shall not be applicable for investments in index fund or sector or industry specific scheme.

A mutual fund scheme shall not invest more than 5% of its NAV in the equity shares or equity related investments in case of open-ended scheme and 10% of its NAV in case of close-ended scheme.

39

FUTURE TREND
In the current scenario, the mutual fund industry does not look that lucrative from the investors perspective as well as from the mutual fund companies perspective. The main reason behind is the bearish trend of the Indian capital market. But what will be the revolutionary, and path changing move in mutual fund industry? The answer is the IPO market, means the mutual fund companies will come up with an IPO and mobilize the saving of the general public through an IPO.

The first step is already taken by the oldest and the largest mutual fund giant of India the UTI(Unit Trust Of India) It did planned its IPO offerings and it was about to raise fund from the market but because of the gloomy environment and financial melt down it has put it on the halt.

UTI was planning to raise Rs40000cr from the IPO market but it has put it on halt because of unfavorable market conditions.An asset management company entering into the IPO market will be revolutionary, as by this way it will be availed to huge funds and will be able to mobilize savings more effectively.

. By December 2004, Indian mutual fund industry reached Rs 1,50,537 crore. It is estimated that by 2010 March-end, the total assets of all scheduled commercial banks should be Rs 40,90,000 crore.

The annual composite rate of growth is expected 13.4% during the rest of the decade. In the last 5 years we have seen annual growth rate of 9%. According to the current growth rate, by year 2010, mutual fund assets will be double.

Some facts for the growth of mutual funds in India

40

100% growth in the last 6 years.

Number of foreign AMC's are in the que to enter the Indian markets like Fidelity investments US based, with over US$1trillion assets under management worldwide.

Our saving rate is over 23%, highest in the world. Only canalizing these savings in mutual funds sector is required.

We have approximately 29 mutual funds which is much less than US having more than 800. There is a big scope for expansion.

'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities.

41

RATIONAL OF STUDY
Indian Financial Market fell very badly after the January 2008. And most of the segments of the financial sector affected badly. So we have decided to take this project to know the impact of this meltdown on the mutual fund sector. OBJECTIVE Out main objectives to get the primary information are as follow : To know the consumer perception towards the mutual funds after the financial meltdown. How many consumers are investing in mutual fund after the financial crisis. What is the share of investment in mutual fund out of their total income. Which type of scheme they mostly prefer. What is their investment pattern. What is their selection criteria How much preference they are giving to mutual funds for investment. Which type of intermediary they are using. What is their selection criteria while investing in mutual fund

For how much period they are invest in mutual fund. For fulfill above objectives we have done following : Research Method : Expletory

Research Instrument : Questionnaire Sample : Location : Age Group : 100 Ahmedabad 18 to 60

42

CHAPTER 4 DATA ANALYSIS AND INTERPRETERATION

43

PRIMARY DATA
AWARENESS ABOUT MUTUAL FUND
. YES NO 100 0

AWARENESS ABOUT MUTUAL FUND

0%

YES NO

100%

.. As mutual fund has been in the market for the considerable period of time, most people do know about it, so 100% of our sample population is aware about it.

44

PURPOSE OF INVESTMENT

RETURN TAX BENEFIT SAVING OTHER

31 41 25 3

PURPOSE OF INVESTMENT 3% 25% 31%

RETURN TAX BENEFIT SAVING OTHER

41%

The reason behind the investment in mutual fund varies significantly, as tax benefit accounts for 41% of the total investment and return expectation accounts for 31% of the total investment . Some people also invest in mutual fund as a saving vehicle.

45

TIME PERIOD FOR INVESTNENT

LESS THAN 6 MONTHS 6 MONTHS TO 1 YEAR 1 YEAR TO 3 YEAR 3 YEAR TO 5 YEAR MORE THAN 5 YEAR 13 7 39 28 13

INVESTMENT TENURE
13% 13% LESS THAN 6 MONTHS 6 MONTHS TO 1 YEAR 28% 1 YEAR TO 3 YEAR 3 YEAR TO 5 YEAR MORE THAN 5 YEAR

7%

39%

Most of the sample population revealed that they invest in mutual fund for more than 1 year. As mutual fund is the kind of vehicle that yields good return when the tenure is at least of three years. If one is investing in mutual fund for five years span than it will yield good return, but as it is more risky vehicle people are more conservative for such along tenure. So majority of the people invest in the 3 year tenure mutual fund.

46

RANKING OF MUTUAL FUNS AS AN INVESTMENT VEHICLE.

RANK 1 2 3 4 5 6 7 8 RESPONSE 3 7 21 25 33 4 5 2

MUTUALFUND'S RANK AS INVESTMENT PREFERENCE

3% 22% 6% 8%

1 2 3
11%

4 5 6

19% 14%

7 8

17%

We asked the respondent to give ranking to mutual fund as an investment preference aginst the instrument like Bank fixed deposit, Post office, Government bond, stock market, PPF, IPO. And we found that most of the people ranked mutual fund in the range of 4 to 8 as investors rate high and put higher value for Bank F.D, Post office saving , PPFand other safer instruments.

47

SHARE OF MUTUAL FUND IN INVESTMENT BASKET

0-25% 26-50% 51-75% 76-100%

47 32 14 7

SHARE OF MUTUAL FUND IN INVESTMENT BASKET

7% 14%
0-25%

47%

26-50% 51-75% 76-100%

32%

We asked the sample population that what is the proportion of investment in your total investment portfolio , and we found that 47% of the total population invested less than 25% of their investment in mutual fund. The main reason behind that finding is the recent melt down in the capital market. And also investors invests large chunk of their investment in the conventional investment vehicle like Bank F.D, Post office etc.

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TYPE OF FUND

MONTHLY INCOME FUND BALANCED FUND EQUITY FUND DEBT FUND

18 23 43 6

TYPE OF FUND 7% 20%

MONTHLY INCOME FUND BALANCED FUND EQUITY FUND

47% 26%
DEBT FUND

Sample population revealed that 47% of the investors preferred equity fund over others. The reason behind the popularity of equity fund is that , investors invest in mutual fund with the expectation of higher return and the equity fund can satisfy that need. And the least preferred fund was the debt fund because investors prefers PSU bank deposit more for fixed return over mutual fund.

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MINIMUM RETURN EXPECTED BY INVESTORS

MINIMUM EXPECTED RETURN 5% 24%

33%

0-10% 11-20% 21-25% 25 & ABOVE

38%

This question is very important, the finding which it shows would have been totally different if we would have asked this question them before the financial melt down and market crash. Now the investors expectations have also corrected with the market. Two years ago there have been the mutual funds which has yielded very insignificant return like 80% and above, but after the instability and panic situation in the capital market the investors has also lowered their expectations. As 38% of the total responded said that they expect return in the rane of 21 to 25%.

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INVESTMENT PATTERN

ONE TIME INVESTMENT SIP

74 26

INVESTMENT PATTERN

26%

ONE TIME INVESTMENT SIP

74%

Most investors preferred the one time investment plan above systematic investment plan. because of the reason that SIP concept is not having that much awareness in the general public.

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INVESTMENT PATTERN WITH RELATION TO TIME

AT THE TIME OF NFO AT YEAR ENDING ANY TIME DURING THE YEAR AT THE TIME OF HIGH LIQUIDITY

20 43 18 19

INVESTMENT PATTERN WITH RELATION TO TIME 19% 20%

AT THE TIME OF NFO AT YEAR ENDING

18%

ANY TIME DURING THE YEAR

43%

AT THE TIME OF HIGH LIQUIDITY

We also asked the investors that at what time during the year, they generally prefer to invest, and we found that 43% of the total sample revealed that they invest during March ending to avail to Tax shield. There is a section of investor, who invests when they have high liquidity.

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SELECTION CRITERIA OF THE FUND

TRACK RECORD BRAND NAME WHETHER

39 33 28

SELECTION CRITERIA

28% 39%
TRACK RECORD BRAND NAME WHETHER

33%

We asked the investor that what they look in the company , when they wants to invest in the mutual fund and the result was mixed. Because 39% of the respondent relied on the past performance of the mutual fund, 33% of the respondent relied on the brand name of the mutual fund.

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INTERMIDIARIES
AGENT BROKER ONLINE INVESTMENT DIRECT APPROACH 48 32 5 15

INTERMIDIARIES 15% 5% 48%

ONLINE INVESTMENT DIRECT APPROACH AGENT BROKER

32%

Approximately half of the respondent said that they invest in mutual fund through Agent only.Second most preferred channel for mutual fund investment is brokers. And there is a small section of the respondent who invest through directly approaching the company or by online way.

54

SECONDARY INFORMATION OBJECTIVE

In secondary data also we have tried to find out something new which is generally you will not find in any of the mutual fund project. We have found out the correlation and beta between the

various types of mutual fund schemes and stock market indices to show that how much any mutual fund move with respect to particular indices of the stock market. We have randomly taken the mutual fund schemes of different companies and compare them with their respective stock market indices. We have taken the following mutual fund sectoral schemes to compare with the different stock indices.

1. IT schemes of mutual fund compare with BSE Tech Index. 2. Realty schemes of mutual fund compare with BSE Realty index. 3. Pharma Fund to compare with BSE Healthcare Index. 4. Pure mid cap schemes to compare with CNX mid cap index. 5. Nifty index schemes to compare with CNX Nifty index.

55

ANALYSIS OF SECONDARY DATA

We have randomly selected five mutual fund schemes depending upon a particular sector and we have selected the respective index from BSE and NSE representing a particular sector and we have compared the average return of the sectoral mutual fund scheme and the return from the sectoral index.

And thereby we found out the variability in the returns of mutual fund and the index representing a specific sector. We found out this variability because the main idea behind investing in mutual fund is to get the benefit of the expertise which mutual fund companies possess which is not availed by the individual investor. So mutual fund companies should be able to yield higher return than index thats why it makes sense to invest in mutual fund.

We have taken the IT mutual Fund Schemes, Pure Mid Cap Mutual Fund Schemes, Pharma Mutual Fund Schemes, Realty Mutual Fund Schemes and Nifty Index Plan Schemes and we have compared them with BSE Tech Index, CNX Mid Cap Index, BSE Healthcare Index, BSE Realty Index and CNX Nifty Index respectively.

In the Following Analysis :

X = Yearly return of sectoral Index.

Y = Avg. return of five mutual fund sectoral scheme

56

(1) SCHEMES OF IT MUTUAL FUND COMPANY

NAME OF MF SCHEME Birla Sun life New Mille. Fund DSP Black Rock Tech Fund Franklin Infotech I Pru Techno. Fund Kotak Tech Fund AVERAGE

2008 (57.12) (59.95) (50.34) (62.75) (60.71) (58.17)

2007 20.77 55.70 (15.78) 10.92 6.37 14.4

2006 46 48.81 42.17 51.64 37.19 45.16

* BSE TECH INDEX 2008 2007 2006 (51.51) 8.51 52.26

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YEAR 1 2 3 TOTAL

X -51.51 8.51 52.26 9.26

Y -58.17 14.40 45.16 1.39

X-X -54.60 5.42 49.17 -

Y-Y -58.63 13.94 44.70 -

(XX)(Y-Y) 3201.20 75.55 2197.90 5474.65

(X-X)2 2981.16 29.38 2417.68 5428.22

MEAN OF X = 3.09 MEAN OF Y = 0.46 COV (X,Y) = 2737.33

2X = 2714.11 BETA = COV (X,Y) / 2X

= 1.009

INTERPRETATION From the above data we can say that in 2008 mutual fund IT schemes were underperforming the BSE Tech index whereas in 2007 mutual fund IT schemes were outperforming. And in 2006 BSE Tech index were outperform Mutual Fund IT schemes. As we have found out the Beta, it comes almost nearer to 1 i.e. 1.009.

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(2) PHARMA FUND

NAME OF MF SCHEME Franklin Pharma Fund JM Healthcare Fund Reliance Pharma Fund SBI Magnum Sector UmbrellaPharma Fund UTI GSF - Pharma AVERAGE

2008 (27.62) (37.31) (33.98) (49.20) (25.95) (34.81)

2007 5.76 11.24 49.98 5.59 12.08 16.93

2006 13.86 16.11 18.31 13.86 8.25 14.08

* BSE HEALTHCARE INDEX 2008 2007 2006 (32.86) 15.65 22.71

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YEAR 1 2 3 TOTAL

X -32.86 15.65 22.71 5.50

Y -34.81 16.93 14.08 (3.81)

X-X -34.69 13.82 20.82 -

Y-Y - 36.08 15.66 12.61 -

(XX)(Y-Y) 1251.62 216.42 293.99 1762.03

(X-X)2 1203.40 189.20 435.97 1828.57

MEAN OF X = 1.83 MEAN OF Y = -1.27 COV (X,Y) = 881.02

2X = 914.285 BETA = COV (X,Y) / 2X

= 0.96

INTERPRETATION From the above data we can say that in 2008 mutual fund Pharma schemes were underperforming the BSE Healthcare index whereas in 2007 mutual fund Pharma schemes were outperforming. And in 2006 BSE Healthcare index were outperform Mutual Fund Pharma schemes. As we have found out the Beta, it comes almost nearer to 1 i.e.0.96.

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(3) REALITY OR INFRA FUND

NAME OF MF SCHEME Can Robaco Infra Fund DSP Blackrock India TIGER Fund ICICI Prudential Infra.Fund Principal Infrastructure & Service Industry Fund Tata Infrastructure Fund AVERAGE

2008 (58.76) (58.18) (50.27) (59.20) (57.59) (56.80)

2007 90.94 82.88 92.92 59.21 82.28 81.65

2006 34.16 52.42 58.53 10.30 62.12 43.51

* BSE REALITY INDEX 2008 2007 2006 (82.13) 69.71 468.96

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YEAR 1 2 3 TOTAL

X -82.13 69.71 468.96 456.54

Y -56.80 81.65 43.51 68.37

X-X 70.05 -82.47 316.78 -

Y-Y - 79.59 58.86 20.72 -

(X-X)(Y- (X-X)2 Y) (5575.28) 4907.00 (4854.18) 6801.30 6563.68 100349.57 (3865.78) 112057.57

MEAN OF X = 152.18 MEAN OF Y = 22.79 COV (X,Y) = (1932.89)

2X = 56028.79 BETA = COV (X,Y) / 2X

= -0.034

INTERPRETATION From the above data we can say that in 2008 mutual fund Realty schemes were outperforming the BSE Realty index and in 2007 the situation was same. And the data of 2006 is somewhat shocking which shows that if you have invest in Reality index of stock market other than the mutual fund realty schemes than it would have give 10 times return. And thats why the beta between this two parameter comes to -0.034.

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(4) PURE MID CAP FUND

NAME OF MF SCHEME Reliance Growth Fund UTI Thematic Mid Cap Fund Sundaram SMILE.Fund Sahra Mid Cap Fund Principal Junior Cap Fund AVERAGE

2008 (54.17) (61.11) (57.62) (58.70) (64.26) (59.17)

2007 74.68 52.80 81.12 75.59 68.23 70.42

2006 42.76 11.76 30.17 19.81 27.05 26.31

* CNX MID CAP INDEX 2008 2007 2006 (59.40) 77.77 27.59

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YEAR 1 2 3 TOTAL

X -59.40 77.77 27.59 45.96

Y -59.17 70.42 26.31 37.56

X-X -74.72 62.45 12.27 -

Y-Y - 71.69 57.90 13.79 -

(XX)(Y-Y) 5356.68 3615.86 169.20 9141.74

(X-X)2 5583.07 3900.00 150.55 9633.62

MEAN OF X = 15.32 MEAN OF Y = 12.52 COV (X,Y) = 4570.87

2X = 4816.81 BETA = COV (X,Y) / 2X

= 0.9489

INTERPRETATION From the above data we can say that in 2008 mutual fund Pure mid cap schemes were giving the same return compare to the CNX mid cap index whereas in 2007 mutual fund mid cap schemes were underperforming. And in 2006 were almost give the same Return.mes. As we have found out the Beta, it comes almost nearer to 1 i.e.0.9489.

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(5) NIFTY INDEX MUTUAL FUND

NAME OF MF SCHEME UTI Index Fund ICICI Prudential Index Fund HDFC Nifty Index Fund ING Nifty Plus Canara Robac Nifty Index Fund AVERAGE

2008 (48.20) (49.12) (52.38) (50.09) (50.31) (50.02)

2007 47.26 54.94 47.61 49.59 53.75 50.63

2006 41.76 43.44 38.66 42.90 37.89 40.93

* CNX NIFTY INDEX 2008 2007 2006 (51.84) 53.18 41.34

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YEAR 1 2 3 TOTAL

X -51.84 53.18 41.34 42.69

Y -50.02 50.63 40.93 41.55

X-X -66.07 38.95 27.11 -

Y-Y -63.87 25.10 13.26 -

(XX)(Y-Y) 4219.89 977.65 359.48 5557.02

(X-X)2 4365.25 1517.11 734.95 6617.31

MEAN OF X = 14.23 MEAN OF Y = 13.85 COV (X,Y) = 2778.51

2X = 3308.66 BETA = COV (X,Y) / 2X

= 0.8397

INTERPRETATION From the above data we can say that in 2008 mutual fund Nifty index mutual fund schemes were giving tha almost same performance compare to CNX Nifty index. And in 2007 and 2006 CNX Nifty index was outperforming the nifty index mutual fund schemes. As we have found out the Beta, it comes to 0.8397.

66

CHAPTER 5 PORTERS FIVE FORCE MODEL

67

PORTER FIVE FORCES MODELS

Substitute Products

Competitive pressure coming from the market attempts of outsiders to win buyers over to their products Supplier Seller collaboration & bargaining Seller Buyer collaboration & bargaining

Suppliers

Rivalry among Competing Sellers

Buyers

Competitive pressure coming from the threat of entry of new rivals

Potential New Entrants

68

Threat from new entrants

With the opening up of the MF sector there has been invasion from many foreign players and even national players. Still now more and more new player are coming into this sector and trying to make a market share for them. So, there is a constant threat from new players who are coming up with innovative schemes and trying to bite the market share of the existing players.

Threat from existing players

The competition is heating up. With this all the existing competitor want to increase their investor base and are willing to capture more and more market share. Even these players are coming up with more and more customized schemes to suit specific investors. Now as a result there is consolidation among the existing players.

Threat of substitutes
The substitutes of mutual fund are Bank deposit, Post office, Saving schemes, Securities, Bonds etc. So there is a considerable threat from these substitutes. The main threat is that of regarding the return that these substitutes offer vis--vis that of the mutual fund.

69

Bargaining power of customers

The customers of mutual fund are individual investors and corporate investor. The bargaining power of these customers is very high because they influence the working of mutual funds. In order to exert pressure on the mutual funds the investors always demand for some new customized schemes.

Bargaining power of suppliers

The supplier of the mutual fund is the sponsor. The sponsor can also exert considerable amount of power to the mutual funds. They can either raise their investment limit of reduce it.

70

CHAPTER 6 SWOT ANALYSIS

71

SWOT ANALYSIS
SWOT Analysis of any industry means analyzing that industrys strength, weakness and opportunities and threats of that industry.

STRENGTH
Professional Management :- Mutual fund provides the services of
experienced and skilled professionals backed by a dedicated investment research team that analysis the performance and prospects of companies and select suitable investments to achieve the objectives of the scheme.

Diversification :- Mutual fund invest in a number of companies across a broad

cross sector of industry and sectors. It reduces the risk

Convenient administration :- Investing in a mutual fund reduce paperwork

and helps you to avoid many problems such as bad delivery, delayed payments and follow up with brokers and companies. Mutual fund save time and many investing easy and convenient.

Return potential :- Over medium to long term mutual fund have the potential to
provide a higher return as they invest in a diversified basket of selected securities.

72

 Low costs :- Mutual fund are relatively less expensive way to invest compared
to directly investing in the capital market because the benefits of scale in brokerage, custodian and other fees translate into lower costs for investor.

Liquidity :- In open ended mutual fund you can take your money back when
you want. So there is good liquidity facility.

Transparency :- Regular information the valued your investment in addition to

disclosure on the specific investment made by your scheme.

WEAKNESS

Lesser return compared to equity :- When compared with equity the return
earned on mutual fund s are less. This is because of the various changes that the mutual funds have to deduct.

Conservative approach :- Mutual fund manager are more conservative in their

approach rather then being practical. Whenever they take any decision on investment they follow the conservative approach. Many a time due to this, it becomes difficult for them to capitalize on certain occasions.

Lack of proper marketing :- The marketing efforts carried out by various

players in the mutual fund industry are often very poor. Still there is not much people aware of what exactly is a mutual fund.

73

OPPORTUNITIES

Governed policy and tax concessions :- Mutual funds take the benefits of
various government policy and come out with new schemes. Moreover certain schemes can be formulated taking in considered the new tax policies.

Changes in capital market :- With the changes in the capital market now the
mutual fund can try to increase the popularity of the equity linked schemes with the successful results of many of the blue chip firms ,the stock market has started rejuvenating again. So stock market can be a good option this year.

New technology:- Mutual fund can take benefits of new technology in

transactions. Already they have started making the use of internet in filling application forms and sending the NAV results directly on mobile phones.

THREATS
Arrival of more and more private and foreign players in the market will intensify competition and will reduce the margin for existing players. This will result in reduced dividends for the investors. The low entry barrier existing in the industry will lead to more and more players to enter into the market. The failure of some these players may lead to loss of credibility among the creditors. The introduction of bonds and debentures and assured returns might cause investors to quit the mutual fund and invest in the capital market.

74

CHAPTER 7 CONCLUSION

75

CONCLUSION

In India, mutual funds attracted only 4.8 per cent of financial savings while a huge 51 per cent went into the banking system and 17 per cent into insurance. And that is not the case with most of the developed countries .In most of the developed countries major portion of the savings are mobilized through mutual fund.

From the primary research we found out that the awareness about the mutual fund is increased considerably, and it is becoming more and more popular among the investors. And from our primary research we also found out that the investors have also became more realistic in expectation of the return because after the financial meltdown their expectation has really corrected and they do not expect extra ordinary returns, but certainly expect above average return because of the risk they are taking.

We have taken the IT mutual Fund Schemes, Pure Mid Cap Mutual Fund Schemes, Pharma Mutual Fund Schemes, Realty Mutual Fund Schemes and Nifty Index Plan Schemes and we have compared them with BSE Tech Index, CNX Mid Cap Index, BSE Healthcare Index, BSE Realty Index and CNX Nifty Index respectively And the result was quite interesting, the beta of the sectoral fund and the market was close to one. It means that both yielded the same return and the risk in the sectoral fund and the market was almost equal. We invest in the mutual fund because we are not the expert of the market and we pay hefty allocation charges to mutual fund companies because they are best at managing funds. And as they are expert they should be able to outperform the market, but that is not the case with mutual fund companies. So why one should invest in mutual fund and pay hefty allocation charges, instead one can invest directly in any sectoral index.

76

CHAPTER 8 BIBILIOGRAPHY

77

Bibliography
Books: BHARTI PATHAK Indian Financial System

Newspapers:

Economic Times Business Standard

Websites:

www.mutualfundsindia.com www.amfiindia.com www.Bajajcapital.com www.valueresearchonline.com

78

CHAPTER 9 ANNEXURE

79

ANNEXURE
QUESTIONNAIRE

Personal Information
Name : Address: __________________________________________________ __________________________________________________ _________________________________________________ ____________

Age:

Gender : Occupation:

Male/ Female _____________________

1. ARE YOU AWARE ABOUT MUTUAL FUND? YES NO

2. WHAT ARE THE PURPOSE OF YOUR INVESTMENT? Return Savings Tax benefit If others___________

3. FOR WHAT TIME PERIOD DO YOU INVEST? Less than six months 1 year to 3 year 5 years & above 6 months to one year 3 year to 5 year

80

4. RANK THE INVESTMENT OPTIONS ACCORDING TO YOUR PREFERENCE (i.e. Most preferable -1 and Least preferable -8 ) a. b. c. d. e. f. g. h. Post Offices ___________ LIC ___________ Govt.Bond & RBI ___________ Stock Market __________ Mutual Fund ____________ Bank FD ____________ PPF ____________ IPOs ____________

5. IF YOU INVEST IN MUTUAL FUNDS THEN WHAT IS THE SHARE OF MUTUAL FUND IN YOUR TOTAL INVESTMENT? 0% - 25% 51% - 75% 26% - 50% 76% - 100%

6. IN WHAT TYPE OF MF SCHEMES YOU ARE NORMALLY INVESTED? Monthly Income Fund Balanced Fund Equity Fund Debt Fund

7. HOW MUCH MINIMUM RETURN DO YOU EXPECT IN MUTUAL FUND? 0% - 10% 11% - 20% 21% - 25% 25& ABOVE

8. WHICH COMPANIES IN WHICH YOU INVEST MOST? (GIVE RANK) (i.e. Most preferable -1 and Least preferable -8 ) a. Reliance Mutual Fund b. Tata Mutual Fund c. HDFC Mutual Fund d. Franklin Templation e. Fidility f. LIC Mtual Fund g. SBI Mutual Fund h. Birla Sun Life __________ __________ __________ __________ ___________ ___________ ___________ ___________

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9.

WHAT TYPE OF INVT. PATTERN YOU FOLLOW? One Time Investment SIP (Systematic Investment Plan) IN WHAT TYPE OF PLAN DO YOU NORMALLY INVEST? Growth Fund Dividend Reinvest Dividend Payout

10.

11.

AT WHAT TIME DO YOU INVEST IN MUTUAL FUND? At the time of NFO Any time of the year At year ending (31st March) Whenever sufficient Savings have

12.

WHAT DO YOU LOOK IN COMPANY WHEN YOU INVEST IN Track Record Whether Govt. undertaking or Private Brand Name

13. 14.

THROUGH WHICH INTERMEDIARIES DO YOU INVT.IN MF? Agent Online Investment Broker Direct Approach

WHAT IS YOUR ANNUAL INCOME? (Approx.) Less than Rs.1, 00,000 Rs.2,00,000 to Rs.3,00,000 Rs.1,00,000 to Rs.2,00,000 Rs.3,00,000 Above

15.

WHAT IS YOUR ANNUAL SAVINGS? (Approx.) Less than 50,000 Rs.1,00,000 to Rs.1,50,000 Rs.50,000 to Rs.1,00,000 Rs.1,50,000 and above

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