PROJECT REPORT

ON
INVESTORS BEHAVIOUR ON MUTUAL FUND

Submitted by

DEPARTMENT OF COMMERCE

CERTIFICATE

This is to certify that the research report entitled “Investors behavior on mutual
fund" is a bonafide work carried out by …….

This research report is submitted for the requirement of the degree of the award of
………………………..

1
This research work has not been submitted anywhere else for any other degree /
diploma.

Date: _______
Place: _______

Faculty Guide

2
 DECLARATION

I, ……………., student of ………of,……. hereby declare that this research report

entitled “INVESTORS BEHAVIOUR ON MUTUAL FUNDS" is written and
submitted by me.

The findings and interpretations in the report are based on both primary and
secondary data collection. This research work is not copied from any source or
other research work submitted for similar purpose.

NAME
MCOM (BUSINESS MANAGEMENT)
SEMESTER 4

3
 ACKNOWLEDGEMENT

I am grateful to ……………. Faculty Guide …………..for her valuable guidance

and support at all time.

I would like to thanks to all those people who provided me necessary information
directly or indirectly throughout this research report completed at time.

Name

4
 TABLE OF CONTENTS

 Executive Summary 6

 Introduction 7

 Literature Review 37

 Objectives of the Study 79

 Research Methodology 80

 Graphical Data Analysis 82

 Findings & Analysis 97

 SWOT Analysis 100

 Recommendations & Suggestions 101

 Conclusion 104

 Bibliography 105

 Annexure - Questionnaire 106

5
 EXECUTIVE SUMMARY

India is the fastest growing economy. The development is taken place due to the growth
in the financial system. This financial system provides the background to various
investors regarding varied options to invest. Thus, development of the economy depends
on how these investors invest for the well being in long run. As financial markets become
more sophisticated and complex, investors need a financial intermediary who provides
the required knowledge and professional expertise on successful investing. Mutual Funds
represent perhaps the most appropriate investment opportunity for investors. As every
thing takes time to hold its roots same as the case of mutual fund. In Indian respect,
mutual fund is not the new concept. From UTI o PSU’s and then a number of private
funds hold a but still this industry face various loop holes . through this aeticles I focused
those loop holes which could mke this article a useful product for AMC, mutual fund
agents, distributors and banks developing countries like India already facing the shortage
of capital formation needs more and more investment. In this regard mutual fund is the
best route for capital supply.
Today a lot of investment opportunities are there like fixed and term deposits in banks,
National saving schemes, post office, non banking financial companies, directly into the
shares, gold, real estate etc. Now the questions arise which scheme they should prefer
which vary on various factors. Through this exploratory research it has been observed
that there is huge potential market in the region of Delhi & NCR .Thus the purpose of this
research was to find why people do not actively invest in mutual fund in spite of various
benefits like Professional management, Risk Diversification, Easy exit, Convenience
liquidity, Flexibility, Tax benefits, Regular small investment through SIP, Investment
stability etc. as well as to find out potential of business of KARVY in distribution of
Mutual Fund in Delhi & NCR . After performing the detailed exploratory research by
interviewing different persons who act as investment advisor like Insurance advisor and
Post office advisor etc. with the help of questionnaire, certain facts were revealed
regarding the view about Mutual Funds in the mind of investors. I have observed that
approximately 60% of the people are unaware of Mutual Funds but most of them are
interested to know about Mutual Funds and if proper information &knowledge provided

6
then they will invest in mutual funds in future. Finding of this report encourage mutual
fund and helps the users to know the perception of classes classes of investors as well as
of general public,their saving patterns, their investment objectives,their investment
criteria,their expections of return and also the misconceptions related to mutual funds.
This study could be a useful source for economists, bankers as well as fund houses.

INTRODUCTION

As per my research work people from service class prefers safety of income plus the
regular income as well as tax benefits while on the other hand Professional and
Businessman focus on high return with some risk. For growth and development of the
Mutual Fund Industry, the misconception regarding Mutual Fund should be removed &
the awareness for the same should be made.
A mutual fund is a professionally managed investment fund that pools money from many
investors to purchase securities.
The money so collected in the common pool of investment is managed and operated by
the company called ASSET MANAGEMENT COMPANIES (AMC). As defined by the
Association of Mutual Funds in India (AMFI), an apex body of all registered asset
management companies, “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 in
capital market instruments such as shares, debentures, and other securities. Investments in
securities are spread across a wide cross section of industries and sectors and thereby
reduce the risk. The income earned through these investments is shared by its unit holders
in proportion to the number of units owned by them. Buying a mutual fund is like buying
a small slice of a big pizza. The owner of a mutual fund unit gets a proportional share of
the fund's gains, losses, income and expenses. Each mutual fund has its own investment
objective. A mutual funds business is to invest the funds thus collected according to the
wishes of the investors who created the pool. Usually, the investors appoint professional
investment managers, to manage their funds. The same objective is achieved when
professional investment managers create a product and offer it for investment to the

7
investor. This product represents a share in the pool, and pre states investment objectives.
Investors in the mutual fund industry today have a choice of 39 mutual funds, offering
nearly 500 products. Though the categories of product offered can be classified under
about a dozen generic heads, competition in the industry has led to innovative alterations
to standard products. The most important benefit of product choice is that it enables
investors to choose options that suit their return requirements and risk appetite.
Mutual fund is required to be registered with SEBI before it can collect funds from the
public.

The most important characteristics of a fund are that the contributors and the
beneficiaries of the fund are the same class of people, namely the investors. The term
mutual fund means the investors contribute to the pool, and also benefit from the pool.
There are no other claimants to the funds. The pool of funds held mutually by investors is
the mutual fund.

Selecting the best financial advisor for mutual fund investor

Information on anything, yes almost anything is available at our fingertips. We investors

are blessed to witness this jet age of information technology. And interestingly, to add
further icing to the cake, all this information is available absolutely free.

In the domain of providing financial services and advisory too, the situation is no
different. There are host of website hogging to provide information.

While many of you may consider that as a valuable service, have you ever wondered
whether that's helping you to add wisdom or it's just pure "information overload"?

8
The investors should reach the wisdom level to make a wise investment decision. The
various problems arise at the time of investment need wisdom level approach to go
through these problems like - Where to invest? How much to invest? What should be the
investment horizon? etc.; but as the above chart indicates that the data and information
which you collect from various source shape your wisdom. This assessment is relevant
because for you to take wise investment decisions, you need to tap that resource which
provides wisdom rather than just pure information overload, which still keeps you
hanging on what to do with your investments.

Today with several investment instruments available, the task of doing prudent
investment planning is furthermore difficult, because you are surrounded with host of
information around several investment instruments such as stocks, mutual funds, bank
FDs, NCDs, corporate bonds, Public Provident Funds (PPF), National Savings Certificate
(NSC), etc., but at the end of it you are still wondering whether you have made the right
investment decision. Why? - Because there are several people who have been influencing
your investment decision, right from your family members, friends, websites, mutual
fund distributors, agents, brokers etc - and mind you everyone has their own view, which
often adds to confusion.

In order for you to remove this anarchy caused by "information overload", what is
required is capturing the pinnacle of wisdom through an investment advisor who provides
independent and unbiased financial advice, keeping his vested interests (of commissions)
at bay. Never mind if he charges you a separate advisory fee, as long as he can help you
capture that pinnacle of wisdom which would assist you to do prudent investment
planning.

We are sure that many of you investors in the past have had horrendous experiences with
your investments. Let discuss of mutual funds in detail. In the year 2006 and 2007 when
the equity markets were on an upswing, there were several New Fund Offers (NFOs)
lined up by various mutual fund houses. Several cities were painted with attractive ad
campaigns enticing you to invest. Mutual fund distributors / agents / relationship
managers too tempted many of you investors to invest in equity mutual funds, giving a

9
favourable picture. But suddenly all these schemes promoted in great gusto lost their
charm during the downturn of the equity markets of 2008 and eroded wealth for you
investors in a manner that you almost lost confidence of investing even in those mutual
funds which have a consistent track record, and those which follow strong investment
processes and systems.

Please recognize that with 4000 schemes floating around in the market the task of
selecting winning mutual funds is rather complex not only for you, but even your mutual
fund distributor / agent / relationship managers. And mind you the exercise of selecting
winning mutual funds is much more than just assessing past performance. It is also only
exhaustive research which can help you in selecting winning mutual funds -create wealth
for you, and not the excitement created by some mutual fund distributors / agents /
relationship managers or even the business channels.

While all the mutual fund distributors' / agents / relationship managers claim that they
subscribe to research habits, you need to ensure that they consider the following research
aspects, and provide independent and an unbiased advice.

Performance record: The past performance of a mutual fund scheme is important to

broadly assess which mutual fund schemes should form a part of your portfolio. But mind
you it is not "the most" important factor to select the right mutual fund schemes for your
portfolio, because we believe that past performance is not everything, and it may or may
not be sustained in the future.

While analysing past performance what's needed is assessment of "performance across

market cycles" which can help you recognise how a fund has performed during times of
equity market turbulence as well as a boom. Moreover, you need to consider the
following points while selecting winning mutual funds:

Peer comparison It should be analysed in comparison with other mutual funds in tht
category as fund analyzed in isolation does not indicate anything. Hence, its performance
must be compared to its benchmark index and peer group in order to construe its
supremacy in the category.

10
Time period: The key to wealth creation is long term investing. Thus while selecting
mutual funds (especially the equity oriented ones) for your portfolio; you need to judge
the long-term performance. Besides, it is equally important to evaluate how a fund has
performed over different market cycles (especially during the downturn). During a rally it
is easy for a fund to deliver above-average returns; but the true measure of its
performance is when it posts higher returns than its benchmark and peers during the
downturn.

Returns: Returns are obviously an important parameter to evaluate a fund's performance.

But wait a second; it is not the only parameter which needs to be looked upon as the
deciding factor. Many investors invest in mutual funds just because the fund has
delivered higher returns. But it is noteworthy that such a method of selecting mutual
funds may be futile as it may erode wealth rather than create it in the long term. In
addition to the returns, you need to look into the volatility, which explain how much risk
the fund has taken to clock higher returns.

Consistent Performance: For mutual fund rankings or most of the analysis, one year
return of any mutual fund scheme is considered. It is critical to check consistency in
performance. For that you should also check 3 year and 5 year returns of the scheme. It
will help to understand whether mutual fund scheme is fad or consistent performer. You
may find lot of schemes with 4 star rating with highest return on 1 year criterion but
delivered poor returns in last 3 years / 5 years. Such fads should be excluded from your
shortlist.

Risk: The risk is normally measured by the Standard Deviation (SD) of the fund. SD
signifies the degree of risk the fund has exposed its investors to. Studying this parameter
helps in matching the risk profile of the fund with that of yours. For example, if two
funds have delivered similar returns, then it would be prudent to invest in a fund which
has taken less risk as denoted by its low SD.

11
Risk-adjusted returns: This parameter is normally measured by the Sharpe Ratio (SR).
It signifies how much return a fund has delivered vis-à-vis the risk taken. Higher the
Sharpe Ratio better is the fund's performance. Thus, it makes sense in choosing a fund
which has a higher SR over the one which has a lower SR. In fact, this ratio enables you
in assessing whether the high returns of a fund are attributed to good investment
decisions, or to higher risk.

Portfolio Concentration: Funds which are skewed or concentrated towards certain

sectors or stocks tend to be very risky or volatile. This is because if the stock bets or

sectoral bets taken by the fund manager go wrong, it would harm the fund's overall

performance. Hence, ideally while selecting mutual funds for your portfolio you should

look at funds which have fairly a diversified portfolio, wherein top-10 stocks do not

exceed more than 40% of its total assets. Also it is vital that you do not have a high

exposure to particular fund house while selecting various types of mutual funds.

Scheme asset size

This parameter is different for debt and equity schemes. In equity the comfortable asset
size in hundreds of crores, in debt it should be in thousands of crores as the investment
value per investor is higher in debt funds. 90 percent of total assets under management
(AUM) of the mutual fund industry are invested in debt funds, so your selected scheme
assets should also have a considerable [Link] AUM in any scheme is very risky as
you don’t know who the investors are and what quantum of investments they have in this
particular scheme.

Exit of any big investor out of any mutual fund may impact its overall performance very
badly and the remaining investors in a scheme will have to bear the impact. In schemes
with larger AUMs this risk gets minimised.

12
portfolio Turnover: The portfolio turnover indicates how frequently stocks are bought
and sold by the fund manager of a mutual fund. A fund manager who aggressively churns
his portfolio in a move to deliver high returns simply engages in momentum playing
rather than investing, which may off-course be risky, but may also balloon the expense
ratio of the fund.

Fund Management: The performance of fund largely depends on the fund manager and
his team. Hence it is very important the fund management team has considerable
experience in steering the fund in times of extreme market volatility. Also, you as
investors' you should avoid funds that owe their performance to a "star fund manager".
Simply because the fund manager present today, might quit tomorrow thus jeopardising
your choice. Therefore, the focus should be on the fund houses that are strong in their
investment systems and processes.

Costs: One also needs to assess the cost incurred by mutual fund scheme. If two funds
are similar in most contexts, it might not be worth buying the one with a high cost if it is
only marginally better than the other. The two main costs which are incurred during
investments in mutual funds are:
Expense Ratio

Expense ratio is very important parameter to be looked at while selecting any mutual
fund scheme. All fund management and distribution related expenses are borne by the
scheme. This means high expense ratio will affect the fund’s returns.

Exit load: After SEBI's ban on entry loads, you investors now have only exit loads to
worry about. An exit load is charged to you investors only when you sell or switch units
of a mutual fund within a particular tenure; most funds charge if the units are sold or
switched out within a year from date of purchase. As exit load is a fraction of the NAV, it
eats into your investment value.

Also apart from the above research aspects / parameters, you need to evaluate the
following points while selecting a prudent, independent and unbiased mutual fund
advisor:

13
Attitudes/Rationalisation: Yes, the attitude and the rationalisations of the agent /
distributor / relationship managers do play a very vital role, which in a way exhibits what
investment products he advises. So, if he thinks of his objective of being richer, he may
sell you inappropriate products not suiting your investment objectives or financial goals,
and earn a handsome sum through the commissions. Hence it is important that you
understand their attitude or philosophy, by having numerous meetings with them before
signing a cheque for your investments.

Advisors qualification: It is imperative to understand your mutual fund advisors

qualifications. The Association of Mutual Funds in India (AMFI) makes it mandatory for
individuals engaging into service of mutual fund advisory to have an advisors
certification issued by the National Institute of Securities Management (NISM). But
merely relying on the certification too isn't enough as one needs to delve a little deeper
into the philosophy (attitude and rationalisation) and research process which he adopts
while advising clients. Moreover, you need to ensure that the advisor is not an individual
who peddles investments as "on the side" activity. Remember, acting on the advice
offered by a mutual fund advisor who doesn't hold the requisite knowledge, could spell
disaster for your mutual fund portfolio.

Infrastructure and value add services: Apart from assessing his attitude and
qualifications you also need to judge whether he has the right infrastructure set up, in
order for you to receive a prudent advise on a continuous basis. Remember entering an
investment is merely the starting point; your investments need to be monitored and
tracked on a regular basis. Hence, as value addition your mutual fund advisor should
ideally provide you various tools and calculators for online tracking of your investments.
Moreover, he should persistently advise you on your portfolio in accordance to the
change in markets conditions and financial goals.

After sales support: As mentioned earlier that entering into an investment is just the
starting point, you also need to judge whether prudent and reliable after sales support can
be provided by your mutual fund advisor. Liquidity is often a driving factor for mutual
fund for many of you investors, and hence the advisor should be able to service

14
redemptions, transfers etc. An advisor who is easily accessible would generally make
sense and concerned about your investment.

Track record of the advice: Well, if he can offer you this you would be able to gauge
quality of the advice. You can cross verify the data provided by him with some of his
clients as reference check. This exercise may not only help you understand his
performance track record, but also help you recognise whether does he (advisor) provide
prompt and reliable after sales service, or is he merely a bluff master.

FEATURES THAT INVESTORS LIKE IN MUTUAL FUND

If mutual funds are emerging as the favorite investment vehicle, it is because of the many
advantages they have over other forms and avenues of investing, particularly for the
investor who has limited resources available in terms of capital and ability to carry out
detailed research and market monitoring. The following are the major advantages offered
by mutual funds to all investors.

 Portfolio diversification: Mutual Funds normally invest in a well-diversified

portfolio or securities. Each investor in a fund is a part owner of all of the fund’s
assets. This enables him to hold a diversified investment portfolio even with a
small amount of investment that would otherwise require big capital.

 Professional management; Even if an investor has a big amount of capital

available to him, he lacks the professional attitude that is generally present in the
experienced fund manager who ensures a much better return than what an investor
can manage on his own. Few investors have the skills and resources of their own
to succeed in today’s fast moving, global and sophisticated markets.

 Reduction/ diversification of risk: An investor in a mutual fund acquires a

diversified portfolio, no matter how small his investment. Diversification reduces
the risk of loss, as compared to investing directly in one or two shares or
debentures or other instruments. When an investor invests directly, all the risk of
potential loss is his own. A fund investor also reduces his risk in another way.

15
 While investing in the pool of funds with other investors any loss on one or two
securities is also shared with other investors. This risk reduction is one of the
most important benefits of a collective investment vehicle like the mutual fund.

 Reduction of transaction costs: What is true of risk is also true of the transaction
costs. A direct investor bears all the costs of investing such as brokerage or
custody of securities. When going through a fund, he has the benefit of economies
of scale; the funds pay lesser costs because of larger volumes, a benefit passed on
to its investors.

 Liquidity: Often, investors hold shares or bonds they cannot directly, easily and
quickly sell. Investment in a mutual fund, on the other hand, is more liquid. An
investor can liquidate the investment by selling the units to the fund if open-end,
or selling them in the market if the fund is closed-end, and collect funds at the end
of a period specified by the mutual fund or the stock market.

 Convenience and flexibility: Mutual fund management companies offer many

investor services that a direct market investor cannot get. Investors can easily
transfer their holdings from one scheme to the other, get updated market
information

But roses have thorns as well…

While the benefits of investing through mutual funds far outweigh the disadvantages, an
investor and his advisor will do well to be aware of a few shortcomings of using the
mutual funds as investment vehicles.

 No Control over Costs: An investor in a mutual fund has no control over the
overall cost of investing. He pays investment management fees as long as he
remains with the fund, albeit in return for the professional management and
research. Fees are usually payable as a percentage of the value of his investments.
Whether the fund value is rising or declining. A mutual fund investor also pays
fund distribution costs, which he would not incur in direct investing. However,
this shortcoming only means that there is a cost to obtain the benefits of mutual

16
 fund services. However, this cost is often less than the cost of direct investing by
the investors.

 No Tailor-made Portfolios: Investors who invest on their own can build their
own portfolios of shares, bonds and other securities. Investing through funds
means he delegates this decision to the fund managers. The very high-net-worth
individuals or large corporate investors may find this to be a constraint in
achieving their objectives. However. Most mutual funds help investors overcome
this constraint by offering families of schemes-a large number of different
schemes – within the same fund. An investor can choose from different
investment plans and construct a portfolio of his choice.

 Poor Reach: Lack of deeper distribution networks and channels is hurting the
growth of the industry. This is an area of concern for the MF industry, which has
not been able to penetrate deeper into the country and has been limited to few
metros.

 Banks still Dominate: The biggest hindrance to the growth of the mutual fund
industry lies in its inability to attract the savings of the public, which constitutes
the major source of investment in the other developed countries. A large pool of
money in the savings in India is still with the state –run and private banks.

 Impact of Global Developments: Though the economic reforms have brought

India on the global investment map, this also exposes the Indian financial market,
including the Indian mutual fund industry, to the volatility in the international
market. Fluctuations in the global markets and the financial systems will now be
evident as the Indian markets get linked to the other foreign markets. Managing
risk in such a scenario will be a key challenge for the Indian mutual fund industry.

MAJOR TERMS USING AT TIME OF INVESTMENT IN MUTUAL FUNDS

17
Net Asset Value (NAV)
Net Asset Value is the market value of the assets of the scheme minus its liabilities. The
per unit NAV is the net asset value of the scheme divided by the number of units
outstanding on the Valuation Date.

Sale Price
It is the price you pay when you invest in a scheme. It may include a sales load. It is also
called Offer Price.

Repurchase Price
It is the price at which a close- ended scheme repurchases its units and it may include a
back – end load. This is also known as Bid price.

Redemption Price
It is the price at which open- ended schemes repurchase their units and close – ended
schemes redeem their units on maturity. Their prices are NAV related.

Sales Load
It is a charge collected by a scheme when it sells the units. It is also known as Front End
Load. Schemes that do not charge a load are called No Load schemes.

Repurchase or Back – End Load

It is a charge collected by a scheme when it buys back the units from the unit – holders.
NFO

A New Fund Offering is the term given to a new mutual fund scheme.

SIP: A Systematic Investment Plan refers to periodic investing in a mutual fund. Every
month or every three months, the investor will have to commit to putting in a fixed
amount. This will go towards the purchase of units.

Corpus

18
Let's assume a very small mutual fund has an initial investment of 1,000 units and each
unit is worth Rs 10. Hence, the total amount with the fund is Rs 10,000. This is referred
to as the corpus. Later, some other investors invest Rs 2,000. Now the corpus will be Rs
12,000 (Rs 10,000 + Rs 2,000).

The total amount invested (Rs 12,000) is called the corpus or the total amount of money
invested in the fund.
'Asset Mix'

The classification of all assets within a fund or portfolio. Assets are assigned to one of the
core asset classes: stocks (equities), bonds (fixed income), cash and real estate. The asset
mix is usually shown as the set of percentages every asset class contributes to the
total market value of the portfolio. It is a key determinant of the risk/reward profile of the
fund, which in turn is largely determinant of long-term performance results.

What is an 'Asset Allocation Fund'

An asset allocation fund is that provides investors with a portfolio of a fixed or variable
mix of the three main asset classes - stocks, bonds and cash equivalent - in a variety of
securities. Some asset allocation funds maintain a specific proportion of asset classes
over time, while others vary the proportional composition in response to changes in the
economy and investment markets.

MUTUAL FUNDS - HIGHLIGHTS

When three Boston securities executives pooled their money together in 1924 to create
the first mutual fund, they had no idea how popular mutual funds would become. The
idea of pooling money together for investing purposes started in Europe in the mid 188s.

19
The first pooled fund in the U.S. was created in 1893 for the faculty and staff of Harvard
University. On March 21st, 1924 the first official mutual fund was born. It was called
Massachusetts Investors Trust.

After one year, the Massachusetts Investors Trust grew $50000 in assets in 1924 to
$392,000 in assets (with around 200 shareholders). In contrast, there are over 10,000
mutual funds in the U.S. today totaling around $7 trillion (with approximately 83 million
individual investors) according to the Investment Company Institute.

The stock market crash of 1929 slowed the growth of mutual funds. In response to the
stock market crash, Congress passed the Securities Act of 1933 and the Securities
Exchange Act of 1934. These laws require that a fund be registered with the SEC and
provide prospective investors with a prospectus. The SEC (U.S. Securities and Exchange
Commission) helped create the Investment Company Act of 1940 which provides the
guidelines that all funds must comply with today.

With renewed confidence in the stock market, mutual funds began to blossom. By the end
of the 1960s there were around 270 funds with $48 billion in assets. In 1976, John C.
Boggle opened the first the first retail index fund called the “First Index Investment
Trust”. It is now called the Vanguard 500 Index Fund and in November 2000 it became
the largest mutual fund growth was Individual Retirement Account (IRA) provisions
made in 1981, allowing individuals (including those already in corporate pension plans )
to contribute $2,000 a year. Mutual funds are now popular known for ease of use,
liquidity and unique diversification capabilities.

20
INDIAN MUTUAL FUND INDUSTRY

MUTUAL FUNDS IN INDIA

Mutual fund in Indian is developed among 6 different phases

Phase 1 (1964 to 1987) Growth of UTI

In India, introduction of mutual fund lies with the development of unit trust of India in
1963 by the act of parliament as the initiative of RBI and government of India. later UTI
was delinked with RBI and industrial development bank of India took over the regularity
and administrative control in place of RBI. The first scheme was launched by UTI was
unit scheme in 1964. This was the big scheme of UTI. In absolute terms, the investible
funds corpus of UTI was about Rs 600 crores in 1984. By 1987-88, the assets under
management (AUM) of UTI had grown 10 times to Rs 6,700 crores. UTI was the only
mutual fund in Indian market and enjoyed monopoly until 1987, when other PSU’s
established their own funds including SBI, Canera bank and Punjab national bank.

Phase 2 (1987 to 1993) Entry of PSU’s fund

In this year public sector mutual funds entered in the market The State Bank of India
established the first non-UTI Mutual Fund, SBI Mutual Fund in November 1987. This
was followed by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund,
Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. From 1987-88 to
1992-93, the AUM increased from Rs 6,700 crore to Rs 47,004 crores nearly seven times.
During this period, investors showed a marked interest in mutual funds, allocating a
larger part of their savings to investments in the funds.

Phase 3 (1993 to 1996)

As the result of economic reform private players also jumped in mutual fund. The first
private sector mutual fund to operate in india was kothari pioneer which later managed by
franklin templaton. This gave the Indian investors a broader choice of 'fund families' and
increasing competition to the existing public sector [Link] funds come with latest
product innovations, investment management techniques and investor-servicing

21
technologies. During the year 1993-94, five private sector fund houses launched their
schemes followed by six others in 1994-95.

Phase 4 (1996 to 1999) Growth And SEBI Regulation:

In 1996, SEBI the regulator of mutual funds in India formulated the mutual fund
regulation which is a comprehensive regulatory framework.

A comprehensive set of regulations for all mutual funds operating in India was
introduced with SEBI (Mutual Fund) Regulations, 1996. These regulations set uniform
standards for all funds. Erstwhile UTI voluntarily adopted SEBI guidelines for its new
schemes. Similarly, the budget of the Union government in 1999 took a big step in
exempting all mutual fund dividends from income tax in the hands of the investors.
During this phase, both SEBI and Association of Mutual Funds of India (AMFI) launched
Investor Awareness Programme aimed at educating the investors about investing through
MFs.

Phase 5 (1999 to 2004) Emergence of a Large and Uniform Industry:

The year 1999 marked the beginning of a new phase in the history of the mutual fund
industry in India, a phase of significant growth in terms of both amount mobilized from
investors and assets under management. In February 2003, the UTI Act was repealed.
UTI no longer has a special legal status as a trust established by an act of Parliament.
Instead it has adopted the same structure as any other fund in India - a trust and an AMC.

UTI Mutual Fund is the present name of the erstwhile Unit Trust of India (UTI). While
UTI functioned under a separate law of the Indian Parliament earlier, UTI Mutual Fund is
now under the SEBI's (Mutual Funds) Regulations, 1996 like all other mutual funds in
India.

22
The emergence of a uniform industry with the same structure, operations and regulations
make it easier for distributors and investors to deal with any fund house. Between 1999
and 2005 the size of the industry has doubled in terms of AUM which have gone from
above Rs 68,000 crores to over Rs 1,50,000 crores.

Phase VI (From 2004 Onwards): Consolidation and Growth:

The industry has lately witnessed a spate of mergers and acquisitions, most recent ones
being the acquisition of schemes of Allianz Mutual Fund by Birla Sun Life, PNB Mutual
Fund by Principal, among others. At the same time, more international players continue
to enter India including Fidelity, one of the largest funds in the world.

The mutual fund industry in India started in1963 with the formation of Unit Trust Of
India, at the initiative of the government of India and Reserve Bank. The history of
mutual funds in India can be broadly divided into four distinct phases:

REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA

The structure of mutual fund in India is governed by the SEBI Regulations, 1996. These
regulations make it mandatory for mutual funds to have a three-tier structure SPONSER
–TRUSTEE-ASSET MANAGEMENT COMPANY (AMC). The sponsor is the
promoters of the mutual fund and appoints the AMC for managing the investment
portfolio. The AMC is the business face of the mutual fund. As its manages all the affairs
of the mutual fund. The mutual fund and the AMC have to be registered with SEBI.

Mutual Funds can be structured in the following ways :

Company form. In which investors hold shares of the mutual fund. In this structure
management of the fund in the hands of an elected board, this in turn appoints investment

23
managers to manage the fund. Trust from, in which the investors are held by the trust, on
behalf of the investors. The appoints investment managers monitors their functioning in
the interest of the investors.

The company form of organization is very popular in the United States. In India mutual
funds are organized as trusts. The trust is created by the sponsors who is actually the
entity interested in creating the mutual fund business. The trust is either managed by a
Board of trustees or by a trustee company, formed for this purpose. The investors’ funds
are held by the trust.

Though the trust is the mutual fund, the AMC is its operational face. The AMC is the first
functionary to be appointed, and is involved in the appointment of all the other
functionaries. The AMC structures the mutual fund products, markets them and mobilizes
the funds and services the investors. It seeks the services of the functionaries in carrying
out these functions. All the functionaries are required to the trustees, who lay down the
ground rules and monitor them, working.

REGULATORY FRAMEWORK

Regulatory jurisdiction of SEBI :

SEBI is the apex regulatory of capital markets. SEBI has enacted the SEBI (mutual fund)
Regulations, 1996, which provides the scope of the regulation of the mutual fund in
India. All Mutual funds are required to be mandatory registered with SEBI. The structure
and formation of mutual funds, appointment of key functionaries, operation of the mutual
funds, accounting and disclosure norms, rights and obligations of functionaries and
investors, investment restrictions ,compliance and penalties are all defined under the
SEBI regulations. Mutual funds have to send half yearly compliance reports to SEBI, and
provide all information about their operations.

24
Regulatory jurisdiction of RBI :
RBI is the monetary authority of the country and is also the regulatory of the banking
system. Earlier bank sponsored mutual funds were under the dual regulatory control of
RBI and SEBI. These provisions are no longer in vogue. SEBI is the regulator of all
mutual funds. The present position is that the RBI is involved with the mutual fund
industry, only to the limited extent of being the regulator of the sponsors of bank
sponsored mutual funds.

Role of Ministry of Finance in Mutual Fund :

The Finance Ministry is the supervisor of both the RBI and SEBI. The Ministry Of
Finance is also the appellate authority under SEBI Regulations. Aggrieved parties can
make appeals to the Ministry of Finance on the SEBI rulings relating to the mutual fund.

Role of Companies Act in Mutual Fund :

The AMC and the Trustee Company may be structured as limited companies, which may
come under the regulatory purview of the Company Law Board (CLB).The provisions of
the Companies Act, 1956 is applicable to these company forms of organizations. The
Company Law Board is the apex regulatory authority for companies. Any grievance
against the AMC or the trustee company can be addressed to the Company Law Board
for redresses.

Role of Stock Exchanges :

If a mutual fund is listed its schemes on stock exchanges, such listings are subject to the
listing regulation of stock exchanges. Mutual funds have to sign the listing agreement and
abide by its provisions, which primarily deal with periodic notifications and disclosure of
information that may impact the trading of listed units.

Legal structure
Mutual funds have a unique structure not shared with other entities such as companies or
the firms. It is important for employees and agents to be aware of the special nature of
this structure ,because it determines the rights and the responsibilities of the fund’s

25
constitutes viz. sponsor, trustees, custodian, transfer agents and of course the fund and the
[Link] legal structure also drives the inter relationship between these constituents.
Like other countries, India has a legal framework within which mutual funds must be
constituted along one unique structure as unit trust. A mutual fund in India is allowed to
issue open ended and a close ended under a common legal structure. Therefore, a mutual
fund may have a several different scheme under it at any point of time.

The Fund Sponsor

“Sponsor” is defined by the SEBI regulations as any person who acting alone or in
combination with another body corporate establishes a mutual fund. The sponsor of a
fund is akin to the promoter of the company as he gets the fund registered with the SEBI.

The sponsor will form a trust and appoint the Board of Trustees. The sponsor will also
generally appoint the AMC as the fund managers. The sponsor, either directly or acting
through the trustees will also appoint a Custodian to hold the fund assets. All these
appointments are made in accordance with the guidelines of the SEBI.

As per the existing SEBI regulations, for a person to qualify as the sponsor, he must
contribute at least 40% of the net worth of the AMC and posses a sound financial track
record over a period of five years prior to the registration.

Mutual Funds as Trusts

A mutual fund is constituted in the form of a Public Trust created under the Indian Trusts
Act, 1882. The fund sponsor acts as the settlers of the trust, contributing to its initial
capital and appoints a Trustee to hold the assets of the Trust for the benefit of the unit
holders, who are the beneficiaries of the trust .The fund then invites investors to
contribute their money in the common pool, by subscribing to “units” issued by various
schemes established by the trust, units being the evidence of their beneficial interest in
the fund.

Trustees

26
The trust – the mutual fund may be managed by a board of Trustees- a body of the
individuals, or a trust company- a corporate body. Most of the funds in India are managed
by the Board of Trustees. While the Board is governed by the provisions of the Indian
Trust act, where the Trustee is a corporate body, it would also be required to comply the
provisions of the Companies Act, 1956, the Board as an independent body, act as the
protector of the interest of the unit holders. The Trustees do not directly manage the
portfolio of the securities. For this specialist function, they appoint AMC. They ensure
that the fund is managed by the AMC as per the defined objective and in accordance with
the trust deed and the regulations of the SEBI.

The trust is created through a document called the Trust Deed that is executed by the fund
sponsor in the favor of the trustees. The Trust Deed is required to be stamped as
registered under the provisions of the Indian Registration Act and registered with SEBI.
Clauses in the Trust Deed, inter alias, deal with the establishment of the Trust, the
appointment of the trustees, their powers and duties and the obligations of the trustees
towards the unit holders and the AMC. These clauses also specify activities that the
fund / AMC cannot undertake. The third schedule of the SEBI (MF) Regulations, 1996
specifies the contents of the Trust Deed.

ASSET MANAGEMENT COMPANY

The role of the AMC is to act as the Investment Manager of the Trust. The sponsors, or
the trustees, if so authorized by the trust deed appoint the AMC. The AMC so appointed
is required to be approved by the SEBI. Once approved, the AMC functions under the
supervision of its own directors and also under the direction of the trustees and the SEBI.
The trustees are empowered to terminate the appointment of the AMC by majority and
appoint a new one with the prior approval of the SEBI and the unit holders.

The AMC would, in the name of the trust, float and then manage the different investment
schemes as per the regulations of the SEBI and as per Investment Management
Agreement it signs with the trustees. Chapter IV of SEBI (MF) Regulations, 1996

27
describes the issues relevant to appointment, eligibility criteria and the restrictions on the
business activities and obligations of the AMC.

The AMC of a mutual fund must have a net worth of at least Rs.10 crores at all the time.
Directors of the AMC, both independent and non independent should have adequate
professional experience in the financial services and should be individuals of high moral
standing, a condition also applicable to other key personnel of the AMC. The AMC
cannot act as a trustee of any other mutual fund. Besides its role as advisory services and
consulting, provided these activities are run independently of one another rand the
AMC’s resources (such as personnel, system, etc) are properly segregated by activity.
The AMC must always act in the interest of the unit holders and report to the trustees
with respect to its activities.

28
 CLASSIFICATION OF MUTUAL FUND SCHEMES

Any mutual fund has an objective of earning objective income for the investors and / or
getting increased value of their investments. To achieve these objectives mutual funds
adopt different strategies and accordingly offer different schemes of investments.

On these bases the simplest way to categorize schemes would be to group these into
two broad classifications:
 Operational Classification
 Portfolio Classification.

Operational Classification highlights the two main types of schemes, i.e. open ended and
close ended which are offered by the mutual funds.
Portfolio classification projects the combination of investment instruments and
investment avenues available to mutual funds to manage their funds. Any portfolio
scheme can be either open ended or close ended.

Operational Classification
(A)Open ended schemes: As the name implies the size of the scheme (fund) is open i.e.
funds which do not have a fixed date of redemption. you can invest your money or withdraw
your money on all business days. Liquidity is the key feature of these types of schemes.
Entry to the fund is always open to the investor who can subscribe at any time. Such fund
stands ready to buy or sell its securities at any time. It implies that the capitalization of the
fund is constantly changing as investors sell or buy their shares. Further the shares or units
are normally not traded on the stock exchange but are repurchased by the fund at announced
rates. Open ended schemes have comparatively better liquidity despite the fact that these are
not listed. The reason is that investor can at any time approach mutual funds for sale of such
units. No intermediaries are required. Morever; the realizable amount is certain since
repurchase is at a price based on declared net asset value (NAV). No minute to minute
fluctuations in rate haunts the investors. The portfolio mix of such schemes has to be
investments, which are actively traded in the market. Otherwise, it will not be possible to
calculate NAV.

29
This is the reason that generally open – ended schemes are equity based. Moreover , desiring
frequently traded securities, open –ended schemes are hardly have in their portfolio shares of
comparatively new and smaller companies since these are not generally not traded. In such
funds, option to reinvest its dividend is also available. Since there is always a possibility of
withdrawals, the management of such funds becomes more tedious as managers have to work
from crisis to crisis. Crisis may be on two fronts; one is that unexpected withdrawals require
funds to maintain a high level of cash available every time implying thereby idle cash. Fund
managers have to face question like “what to sell”. He could very well have to sell his most
liquid assets. Second, by virtue of this situation such funds may fail to grab favorable
opportunities. Further to match quick cash payments, funds cannot have matching realization
from their portfolio due to intricacies of the stock market. Thus, success of the open ended
schemes to a great extent depends on the efficiency of the capital market.

(B) Close ended schemes:

Unlike the open ended funds Such schemes have a fixed period after which their shares/ units
are redeemed. Unlike open ended, these funds have fixed capitalization, i.e. corpus normally
does not change throughout its life period. Unlike the open ended funds, close ended funds
are open to purchase at initial launch and for redemption after specified period of time. Close
ended funds units’ trade among the investors in the secondary market since these are to be
quoted on the stock exchanges. Their price is determined on the basis of demand and supply
in the market. Their liquidity depends on the efficiency and understanding of the engaged
brokers. Their price is free to deviate NAV, i.e., there is very possibility that the market price
may be above or below its NAV. If one takes into account the issue expenses, conceptually
close ended funds units cannot be trade at a premium or over NAV because of a package of
investments, i.e., cannot exceed the sum of the prices of the investments constituting the
package. Whatever premium exists that may exist only on account of speculative activities.
In India as per SEBI (MF) Regulations every mutual fund is free to launch any or both types
of schemes.

30
Portfolio Classification of Funds:
Following are the portfolio classification of funds, which may be offered. This classification
may be on the basis of (a) Return (b) Investment Pattern (c) Specialized sector of investment
(d) Leverage (e) Others

A) Return Based Classification

To meet the diversified needs of the investors, the mutual fund schemes are made to
enjoy a good return. Returns expected are in form of regular dividends or capital
appreciation or a combination of these two.

Income Funds: For investors who are more curious for returns, income funds are floated.
Their objective is to maximize current income. Such funds distribute periodically the
income earned by them. These funds can further be spitted up into categories: those that
stress constant income at relatively low risk and those that attempt to achieve maximum
income possible, even with the use of leverage. Obviously, the higher the expected
returns, the higher the potential risk of the investment.

Growth Funds: Such funds aim to achieve increase in the value of the underlying
investments through capital appreciation. Such funds invest in growth oriented securities
which can appreciate through the expansion production facilities in long run. An investor
who selects such funds should be able to assume a higher than normal degree of risk.

Conservative Funds: The fund with a philosophy of “all things to all” issue offer
document announcing objectives as (i) To provide a reasonable rate of return, (ii) To
protect the value of investment (iii) To achieve capital appreciation consistent with the
fulfillment of the first two objectives. Such funds which offer a blend of immediate
average return and reasonable capital appreciation are known as “middle of the road
“funds. Such funds divide their portfolio in common stocks and bonds in a way to
achieve the desired objectives. Such funds have been most popular and appeal to the
investors who want both growth and income.

B) Investment Based Classification:

31
Mutual funds may also be classified on the basis of securities in which they invest.
Basically, it is renaming the subcategories of return based classification.

Equity Fund: Funds investing in equity shares are called equity funds. These funds
carry principle objective of capital appreciation of investment over medium to long term.
They are best suited for investors who are seeking capital appreciation. . Naturally they
have a higher degree of risk.

Equity funds again can be of different categories varying from those that invest
exclusively in high quality ‘blue chip’ companies to those that invest solely in the new,
unestablished companies. There are different types of equity funds such as

diversified fund- investment is made in companies spread across the sector. These are
generally meant for risk adverse investors who want a diversified portfolio across sector.

Sector fund- these funds invest primarily in equity shares of companies in a particular
business sector or industry. These funds are targeted at investors who are bullish or fancy
the prospects of a particular sector.

Index Fund-These funds invest in the same manner as popular market indices like S and
P CNX Nifty or S and P CNX 500. The money collected from investors are invested only
in the stocks, which represent the index.

Bond Funds: Such funds have their portfolio consisted of bonds, debentures,etc. this
type of fund is expected to be very secure with a steady income and little or no chance of
capital appreciation. Obviously risk is low in such funds. In this category we may come
across the funds called ‘Liquid Funds’ which specialize in investing short term money
market instruments. The emphasis is on liquidity and is associated with lower risks and
low returns.

TYPES OF MUTUAL FUNDS

All mutual fund would be either close ended or open ended or either load or no load.
These classifications are general. For example all open – end funds operate the same

32
way; or in case of a load a deduction is made from investor’s subscription or redemption
and only the net amount used to determine his number of shares purchased or sold.

Funds are generally distinguished from each other by their investment objectives and
types of securities they invest in. The major types of funds available:-

 Money Market Funds

Often considered to be at the lowest ring in the order of risk level. Money Market Funds
invest insecurities of short term nature which generally means securities of less than one
year maturity. The typical short term interest bearing instruments these funds invest in
Treasury Bills issued by governments, Certificate of Deposits issued by banks and
Commercial Paper issued by companies. The major strengths of money market funds are
the liquidity and safety of principal that the investors can normally expect from short
term investments.

 Gilt Funds
These funds invest in central and state government securities. Since they are backed by
government they give a secured return and also ensure safety of the principle amount.
They are best suited for medium to long term investors who are adverse to risk.

 Debt Funds (Income Funds)

Investment made in high rated fixed income bearing instruments like bonds, debentures,
government securities, commercial papers, and money market instruments. They provide
a regular income to the investors and best suited for medium to long term investors who
are adverse to risk and seek capital preservation.
Equity Fund
As investors move from debt funds category to equity funds, they face increased risk
level. However there are a large variety of equity funds and all of them is not equally risk
prone. Investor and their advisors need to sort out and select the right equity fund that
risk appetite.

33
Equity funds invest a major portion of their corpus in equity shares issued by the
companies, acquired directly in initial public offerings or through the secondary market.
Equity funds would be exposed to the equity price fluctuations risk at the market level, at
the industry or the sector level and the company specific level .Equity Funds NAV
fluctuates with all these price movement. These price movements are caused by all kinds
of external factors, political and social as well economic. The issuers of equity shares
offer no guaranteed repayments in case of debt instruments. Hence, equity funds are
generally considered at the higher end of the risk spectrum among all funds available in
the market. On the other hand, unlike debt instruments that offer fixed amounts of
repayments, equities can appreciate in value in line with the issuers’ earning potential and
so offer the greatest potential for growth in capital. Equity funds adopt different
investment strategies resulting in different levels of risk. Hence they are generally
separated into different types in terms of their investment styles. Some of these equity
funds are as under:
 Equity Income Funds
Usually income funds are in the debt funds category, as they target fixed income
investments. However there are equity funds that can be designed to give the investors a
high level of current income along with some steady capital appreciation, investing
mainly in shares of companies with high dividend yields.

As an example an equity income fund would invest largely in power/ utility companies’
shares of established companies that pay higher dividend and whose price do not
fluctuate as much as the other shares. These equity funds should therefore be less volatile
and less risky than nearly all other equity funds.

 Hybrid Funds
We have seen that in terms of the nature of financial securities held, there are
three major mutual fund types: money market, debt and equity. Many mutual
funds mix these different types of securities in their portfolios. Thus, most funds
equity or debt always have some money market securities in their portfolios as
these securities offer the much needed liquidity. However money market holdings

34
 will constitute a lower proportion in the overall portfolios. These are the funds
that seek to hold a relatively balanced holding of debt or equity in their portfolios.
Such funds are termed as “hybrid funds” as they have a dual equity/ bond focus.
 growth and Income Funds

Unlike income or growth focused funds, these funds seek to strike a balance between
capital appreciation and income for the investor. Their portfolios are a mix between
companies with good dividends paying records and those with potential for capital
appreciation. These funds would be less risky than the pure growth funds though more
risky than the income funds

 Balanced Funds
In balanced funds, investment is made in some proportion both in equity shares
and fixed income bearing instruments. They provide a steady return and reduce
the volatility of the fund while providing some upside for capital appreciation.
They are ideal for medium to long term investor who are willing to take moderate
risk.

Disclosure requirements

Mutual funds are required to disclose to SEBI regular, comprehensive disclosures of

their operations. In addition, each fund must provide unit holders with annual report
along with a statement on portfolio holdings, and it must furnish unit holders and
prospective investors with an up-to-date prospectus. The prospectus contains full
disclosures on the fund‘s management, investment objectives, purchase redemption
procedures and other business practices, including load charges, if any. It is often
criticized that big investors trade to the disadvantage of small investors. Mutual funds
shall disclose large unit holdings in the scheme, which are over 25% of the NAV. The
offer document discloses the constitution of the mutual fund including the details
regarding the sponsor, the trustees, the AMC, the custodian and the responsibilities and
functions of each constituent of the mutual fund; the detailed investment objective of the

35
scheme and the investment pattern likely to be followed by the AMC, the risk profile of
the investments; and risk factors. The offer documents also contains other information
pertaining to the redemption of units, the tax benefits available to unit holders, the
principles of valuation of investments, the method of calculation of NAV, frequency and
mode of distribution of income, the duration of the scheme, the detailed breakup of the
expenses that will be 108 incurred for the management of the scheme and the extent to
which expenses are loaded on the scheme. Mutual funds are required to disclose full
portfolio of their schemes every half year, either by sending a complete statement of
scheme portfolio or by publishing it by way of an advertisement in one English daily
circulating in the whole of India and in a newspaper published in the languages of the
region where the head office of the mutual fund is situated.

Advertisements

Mutual funds must adhere to specific rules regarding the sale, distribution and
advertising of mutual funds. Advertisements or sales literature must be carefully worded
and explained. The advertisement for each scheme shall disclose investment objective for
each scheme. The offer document and advertisement materials shall not be misleading or
contain any statement or opinion, which is incorrect or false. These steps ensure that
potential investors are aware of the benefits as well as the potential risks involved in
mutual fund investing. With a view to ensure that an asset management company may not
in promoting its schemes use untrue and misleading information or withhold important
facts from investors SEBI has prescribed an advertisement code. Advertisements in
respect of every scheme shall be in conformity with the Advertisement Code.

36
LITERATURE REVIEW

ROLE OF FINANCIAL ADVISORS

Due to rapid industrialization and development there is big opportunity and potential for
financial product marketing. Mostly the people belong to Middle or Service Class who
normally spent their maximum time in works or services, a part from this they don’t have
proper knowledge about Mutual Fund. Mostly people want to invest their money in safe
investment like govt. Insurance & Fixed Deposit (e.g LIC, POST OFFICE, NSC etc.)
which gives low & secured returns in future. Mutual Funds normally based on Capital
Market and the return depends on Market conditions. Due to many fraud cases (like Fine
India Investment &City limonize) people don’t have faith in private sector financial
products and also due to Global Market Slow down Mutual Funds not given good returns;
this is also an other reason that people don’t believe in Mutual Fund. As I was worked as
a trainee in Quantum global securities ltd. as Financial Consultant. Quantum global
securities ltd. Is an independent share broking and financial advisory firm focused on
managing individuals’ investment. It is redefined with a goal to build a financial planning
firm offering sound, independent financial advice and highest level of service. During
my intern I had faced many people who have such mentality (Stated above) about
investment in present time. It is very difficult to conveyance the people for investment
and I tried my best to make them invest in Mutual Funds. In Delhi & NCR people belong
to 50% service class, 20% Business Class and 30% people are of lower level. People who
belong to Service & Business Class were come under Income Tax, I know many people
of service class in my surroundings & community. I have approached to many friends,
neighbors and other people to conveyance them to invest in some Mutual funds which
will give positive return in future. And many of them given a good response to it and also
invested to this Fund.

Our scope is to provide knowledge and induce them to invest in mutual funds through us.
We approach business class people and service class people to channelize their saving in

37
growth as well as tax saving mutual funds depending on various other factors. Our aim is
to invest money of people through various scheme of mutual funds as suited to them and
to gain knowledge how to deal with customer and to conveyance them. By our
conveyance power we made people to invest in various mutual fund. Mutual funds serve
as a link between the saving people and the capital market in that they mobilize saving
from investors and bring them to borrowers in the capital markets. In short, it is a
common pool of money into which investors place their contribution that is to be invested
in accordance with a stated objective. A mutual fund uses the money collected from the
investors to buy those assets, which are specially permitted by its stated investment
objective. When an investor subscribes to a mutual fund, he/she buys a part of asset or the
pool of funds that are outstanding at that time. A mutual fund is constituted as an
investment company and an investor buys into the fund, means he buys the share of the
fund and is known as a unit holder. Since each unit holder is a part of owner of a mutual
fund, it is necessary to establish the value of his part. Since the unit held by an investor
evidences the ownership of the fund’s assets, the value of the total asset of the fund when
divided by the total number of units issued by the mutual fund gives us the value of one
unit. This is called as Net Asset Value(NAV)

Lower Class 30% Service Class 50% Business Class 20%

During the survey, it is observed that people 50 percent of people have engaged in bank
deposits,12 percent in mutual funds,20 percent in government bands and 18 percent in
equity market.

Major Reasons of Choosing Above Are Returns, Risk, Safety and Tax Benefits.

Investment Objective and Investment goals vary from person to person. While somebody
wants security, others might give more weightage to returns alone. Somebody else might
want to plan for his child’s education while somebody might be saving for the proverbial
rainy day or even life after retirement. With objectives defying any range, it is obvious
that the products required will vary as well. So, Mutual funds can be classified based on
the objectives of the investor.

38
1.) By Schemes

(a). Equity Fund: Equity funds invest a major portion of their corpus in equity shares
issued by [Link] of equity funds are fluctuated by fluctuation in price of shares
that it holds. So there is a high risk as well as high return in equity fund. Potential to earn
in such funds is higher when they are invested for long term. The leading example of
such funds are Prudential ICICI Growth Plan, Tata Pure Equity Fund, Reliance Vision,
Franklin India Prima Fund, L and T Emerging Business Fund, Reliance Small Cap Fund,
IDFC Sterling Equity Fund etc.

(b). Debt Fund: Debt funds invest in debt instruments debt instruments issued by
governments, private companies, banks and financial institutions. By investing in debt,
these funds target low risk and stable income investors. These funds are low risk low
return funds. The leading examples are Birla Income Plus, Principal Income Fund, HDFC
Income Fund, UTI Bond Fund etc.

(c). Balanced Fund: A balanced fund is one that has a portfolio comprising debt
instruments as well as preference and equity shares. The idea is to reduce volatility of
funds, while providing some upside for capital appreciation. They are best suitable for the
people looking for a combination for capital appreciation and regular income and best
time spend for such investment is more than 3 years. The leading examples are Prudential
ICICI Balanced Fund, Birla Balance Fund, Franklin India Balance Fund, Sundaram
Balance Fund, HDFC Prudence Fund, HDFC Balanced Fund etc

(d). Money Market Fund: Money market funds invest in securities of a short-term
nature, which generally means securities of less than one-year maturity such as Treasury
Bills issued by governments, Certificates of deposit issued by banks and Commercial
paper issued by companies. The major strength of money market funds are the liquidity
and safety of principal that the investors can normally expect from short term
investments. The leading examples are Prudential ICICI Liquid Plan, Templeton India
Liquid Fund, Grindlays Cash Fund etc.

39
(e). Gilt Fund: These funds are sort of government funds wherein the investments are
made in debt instrument of government, which carry no risk of non payment of interest as
the RBI manages the payment of interest and principal on the investments. These funds
are best suited for regular income and long term investment objectives. The leading
examples are Tata Gilt Securities Fund, Templton India Government Securities Fund,
SBI Magnum Gilt Fund etc

2. By Duration:

(a). Open-ended Fund: An open-ended fund is one that is available for subscription and
repurchase on a continuous basis. These schemes do not have a fixed maturity period.
Investors can conveniently buy and sell units at NAV related prices which are declared
daily basis. The key feature of this fund is liquidity.

(b). Close-ended Fund: A close ended fund has a stipulated maturity period e.g. 5-7
years. The fund is open for subscription only during a specified period at the time of
launch of the scheme. Investor scan invest in the scheme at the time of initial public issue
and thereafter they can buy or sell units on stock exchange where the units are listed at
NAV. These mutual fund schemes disclose NAV generally on weekly basis.

(c). Interval Fund: 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. Risk Return Grid Risk Tolerance/Return Focus Suitable Products Benefits
offered by MFs Expected Bank/ Company FD, Debt Liquidity, Better Post-Low Debt
based Funds Tax returns Partially Balanced Funds, Some Liquidity, Better Post- Debt,
Diversified Equity Funds and Tax returns, Better Medium Partially some debt Funds,
Mix of Management, Equity shares and Fixed Deposits Diversification, Expertise Capital
Market, Equity Funds in stock picking, High Equity (Diversified as well as Liquidity,
Tax free Sector) dividends [Risk Return Grid of various MF]

3. By Load:

(a). Load Fund: Marketing of new mutual fund scheme involves initial expenses. These
initial expenses may be recovered from the investors by entry or exit load.

40
(i). Entry Load or Front-end Load: If initial expenses recovered from investors at the
time of investor’s entry into the fund, by deducting a specific amount from his initial
contribution it is called Entry Load.

(ii). Exit Load or Back-end Load: If initial expenses recovered at the time of the
investor’s exit from the scheme, by deducting a specified amount from the redemption
proceeds payable to the investor it is called exit load.

(iii). Deferred Load: The load amount charged to the scheme over a period of time is
called a deferred load.

(b). No Load Fund: Funds that don’t charge entry, exit, or deferred load or any other
charges for sales expenses are called no load funds.

•Generally all Mutual Fund companies charge 2 to 2.5% entry load on equity fund.
•Generally there is no exit load on equity and sectoral funds to maintain liquidity of those
funds.

•Generally there is no entry load on gilt scheme and income fund.

•There is 0.25 to 1% exit load on gilt and income fund if investors exit from fund before
specified time which is generally 3 to 6 months.

4. Other types of fund:

(a). Tax Saving Funds: These schemes offer tax rebates to the investors under specific
provisions of the Income Tax Act, 1961 as the Government offers tax incentives for
investment in specified avenues. E.g. Equity Linked Saving Scheme (ELSS). Pension
schemes also offer tax benefits. The leading examples are Prudential ICICI Tax Plan,
Templeton India Pension Plan, Franklin India Tax shield etc.

(b). Index Funds: Index Funds replicate the portfolio of a particular index such as the
BSE Sensitive index, S&P NSE 50 index (Nifty), etc. These schemes invest in the
securities in the same weightage comprising of an index. NAV of such funds are changed
accordance with the change in the index. The leading examples are Birla Index Fund,

41
HDFC Index Fund, Prudential ICICI Index Fund, UTI Index Fund etc. (C). Sector Funds:
These are the funds which invest in the securities of only those sectors or industries as
specified in the offer documents. E.g. Pharmaceuticals, Software, Petroleum etc. These
types of funds are more risky compared to diversified funds. The leading examples are
Birla IT Fund, Pru. ICICI FMCG Fund, Franklin India Pharma Fund etc. (d). Commodity
Funds: Commodity funds invest into the different commodities directly or through shares
of commodity companies. E.g. Commodity fund invest in gold or shares of gold mines.
Commodity funds have not yet developed in India. (e). Off Shore Funds: These funds
invest in equities in one or more foreign countries there by achieving diversification
across the country’s borders. However they also have additional risks such as the foreign
exchange rate risk and their performance depends on the economic conditions of the
countries they invest in.

42
INVESTMENT PLANNING
The different investment plans are important considerations in the investment decisions
because they determine the level of flexibility available to the investors. Alternate
investment plans offered by the fund allow the investor freedom with respect to investing
at one time or at regular intervals, making transfers to different schemes within the same
fund family or receiving income at specified intervals or accumulating distributions.

Some of the investment plans offered by financial advisors are as follows:-

Automatic Reinvestment Plans (ARP)

In India, many funds offer two options under the same scheme the dividend option and
the growth option. The dividend option or the Automatic Reinvestment Plans (ARP)
allows the investor to reinvest in additional units the amount of dividends or other
distribution made by the fund, instead of receiving them in cash. Reinvestment takes
place at the ex-dividend NAV. The ARP ensures that the investors reap the benefit of
compounding in his investments. Some funds allow reinvestments into other schemes in
the fund family.

Automatic Investment Plans (AIP)

These require the investor to invest a fixed sum periodically, there by letting the investor
save in a disciplined and phased manner. The mode of investment could be through debit
to the investor’s salary or bank account. A program that allows an individual to have a
set amount electronically transferred from one accounts to another at a
specified frequency. These plans are also known as the Systematic Investment Plans.
(SIP). SIP works best in equity funds. It enforces saving discipline and helps you profit
from market volatility- you buy more units when the market is down and fewer when the
market is up.

Systematic Transfer Plans (STP)

Systematic transfer Plan (STP) is a strategy where an investor transfers a fixed amount of
money from one category of fund to another, usually from debt funds to equity funds.
Investing a lump sum amount in equity or mutual fund could be dicey for the investor as

43
Equity markets are volatile and returns in equity mutual fund is linked to the performance
of stock market. On the other hand if the investor invests the lump sum amount in debt
funds it will generate less return when compared to other investment avenues. Systematic
transfer plan helps to keep a balance of risk and return.

How does STP work?

First select a debt fund which allows STP to invest in that particular equity fund.
Generally both the funds are managed by the same fund house. After selecting the debt
fund invest all the money that is Rs 10 Lakhs in the debt fund. Now you have to decide
an amount which will be transferred from debt fund to equity fund.

Entry and Exit Load

A minimum of six transfers is required Say if a person wants to invest Rs 10 Lakhs in an
equity fund through STP, he will have to apply for a STP. There is no entry load while
entering into the fund. Exit load varies from fund to fund depending upon the period of
investment subject to a maximum of 2%.
Transfer can be weekly, fortnightly, monthly and Quarterly

Systematic Withdrawal Plan (SWP)

Such plan allow the investor to make systematic withdrawal from his fund investment
account on a periodic basis, thereby providing the same benefit as regular income. The
investor must withdraw a specific minimum amount with the facility to have withdrawal
amounts sent to his residence by cheque or credited directly into his bank account. The
amount withdrawn is treated as redemption of units at the applicable NAV as specified in
the offer document. For example, the withdrawal could be at NAV on the first day of the
month of payment. The investor is usually required to maintain a minimum balance in his
bank account under this plan. The things to understand here is that the SWP’s are
different from the Monthly Income Plans, as the former allow investors to get back the
principal amount invested while the latter only pay the income part on a regular basis.

44
Investment Strategy or Style: You as an investor also need to know the investment
strategy followed by the fund house, meaning the methodology followed for selecting
stocks. The key investment strategies or styles include top down strategy, bottom up
strategy, value strategy and growth strategy.
i) Top-down strategy - simply means that the sector is chosen first and then the best
stocks within that sector are bought in the portfolio.

ii) Bottom up strategy - means that well-researched stocksare bought irrespective of the
sector.

iii) Growth Strategy - means that the fund will invest in companies which have a
consistent track record of profitability and growth, andare likely to continue on this path
in the future.

iv) Value Strategy - means that the fund will invest in companies which have a potential
to grow exponentially in future and are currently available at a lower value.

45
EQUITY FUND
An open – ended Equity Scheme

Fund features:
Who should invest? The scheme is suitable for investors seeking
effective diversification by spreading the risks
Without compromising on the returns.
Investment Objective The objective is to provide investors long term
Capital appreciation.
Investment option a) Growth b) Dividend
Liquidity Sale and repurchase on all business days.
NAV calculation All business days.
Redemption proceeds Will be dispatched within 3 business days.
Tax benefits Indexation benefits, no Gift Tax, no Wealth tax.
Minimum application amount New investor: Rs. 5000
Existing investor: Rs. 500

46
 INDEX FUND
An open – ended Index Scheme

Fund features
Who should invest? The scheme is suitable for investors seeking capital
appreciation commensurate with that of the market.
Investment Objective The objective is to invest in the securities that
Comprise S&P CNX Nifty in the same Proportion
so as to attain results commensurate with the Nifty.
Investment option a) Growth b) Dividend
Liquidity Sale and repurchase on all business days.
NAV calculation All business days.
Redemption proceeds Will be dispatched within 3 business days.
Tax benefits Indexation benefits, no Gift Tax, no Wealth tax.
Minimum application amount New investor: Rs. 5000

47
 BALANCED FUND

An open – ended Balanced Scheme

Fund features
Who should invest? The scheme is suitable for investors who seek long
term growth and wish to avoid the risk if investing
solely in equities. It provides a balanced exposure to
both growth and income producing assets.
Investment Objective The objective is to provide periodic returns and
capital appreciation through a judicious mix of
equity and debt instruments, while simultaneously
aiming to minimize capital erosion.
Liquidity Sale and repurchase on all business days.
NAV calculation All business days.
Redemption proceeds Will be dispatched within 3 business days.
Tax benefits Indexation benefits, no Gift Tax, no Wealth tax.
Minimum application amount New investor: Rs. 5000
Existing investor: Rs. 500

48
 TAX SAVINGS FUND
An open – ended Equity Linked Savings Scheme

Fund features
Who should invest? The scheme is suitable for investors seeking income
tax rebate under section 88(2) of ITA along with
long term appreciation from investments in equities.
Investment Objective The objective of the scheme is to build a high
quality growth oriented portfolio to provide long
term capital gains to the investors. The scheme aims
at providing returns through capital appreciation
Over the file of the scheme.
Liquidity Sale and repurchase on all business days.
NAV calculation All business days.
Redemption proceeds Will be dispatched within 3 business days.
Tax benefits Tax-rebate under section 88, indexation benefits, no
Gift tax, no Wealth tax.
Special feature Personal accident insurance
Lock – in period 3 years
Minimum application amount Rs. 500

49
 TRUST BENEFIT SCHEME
An open – ended Income Scheme

Fund features
Who should invest? The scheme has been formulated exclusively to
address the investment needs of the organization,
such as charitable and religious trusts and other non
profit making bodies.
Investment Objective The investment objective of the scheme is to build a
high quality income oriented portfolio and provide
returns and / or capital appreciation along with
regular liquidity to a distinct class of investor with
special needs.
Liquidity Sale and repurchase on all business days.
NAV calculation All business days.
Redemption proceeds Will be dispatched within 3 business days.
Tax benefits Indexation benefits, no Gift Tax, no Wealth tax.
Minimum application amount New investor : Rs. 50000
Existing investor : Rs. 10000

Average Maturity 4.7 years

50
 CASH MANAGEMENT FUND _ LIQUID OPTION
An open – ended Liquid Scheme
Fund features
Who should invest ? The scheme is a suitable investment for an investor
seeking very high liquidity and negligible principal
risk while aiming for a good return.
Investment Objective The objective of the scheme is to provide investors
with a high level of income from short term
investments. The scheme will focus on preserving
the investor’s capital and liquidity. Investments will
be made in money market and in investment grade
debt instruments.
Investment options a) Growth b) Dividend (Daily/ Weekly /Monthly)
Liquidity Sale and repurchase on all business days.
NAV calculation 365 days a year
Redemption proceeds Will be dispatched within 1 business days.
Average Maturity 128 days
Growth Plan / Dividend Plan Growth Plan / Dividend Plan
Minimum Application New investor Existing New investor Existing
Amount Investor Investor
Rs. 10000 Rs.1000 Rs. 1 crore Rs. 1 lakhs

51
 CASH MANAGEMENT FUND _ MONEY AT CALL
An open – ended Liquid Scheme

Fund features
Who should invest ? The scheme is a suitable investment for an investor
seeking very high liquidity and negligible principal
risk while aiming for a good return.
Investment Objective The objective of the scheme is to provide investors
with a high level of income from short term
investments. The scheme will focus on preserving
the investor’s capital and liquidity. Investments will
be made in money market and in investment grade
debt instruments.
Investment options a) Growth b) Dividend (Daily)
Liquidity Sale and repurchase on all business days.
NAV calculation 365 days a year
Redemption proceeds Will be dispatched within 1 business days.
Average Maturity 86 days

Minimum Application New investor Existing New investor Existing

Amount Investor Investor
Rs.1 lakh Rs. 1 lakh Rs. 1 crore Rs. 10 lakhs

52
 CHILD BENEFIT FUND
An open – ended Equity Scheme

Fund features
Who should invest ? The scheme is suitable for investors seeking long
term growth and accumulation of capital for the
beneficiary.
Investment Objective The objective of the scheme is to generate regular
returns along with capital appreciation with the aim
of giving lump sum capital growth to the
beneficiary at the end of the chosen target period.
Investment option Career builder plan (one time investment )
Future guard plan (recurring annual investment)
Liquidity Sale and repurchase on all business days.
NAV calculation All business days.
Redemption proceeds Will be dispatched within 3 business days.
Tax benefits Indexation benefits, no Gift Tax, no Wealth tax.
Special Feature Life insurance facility (for future guard investors)
Minimum application amount New investor : Rs. 5000
Existing investor : Rs. 500

53
 MONTHLY INCOME PLAN
An open – ended fund

Monthly Income is not assured and is subject to the availability of distributable surplus.

Fund features
Who should invest ? An open ended income scheme having periodical
distributions with no assured monthly returns. MIP
attempts to provide income on a monthly basis and
is therefore particularly suited for investors seeking
regular source of income .
Investment Objective The objective is to generate regular income through
investments in debt securities to enable periodical
income distribution and also to generate long term
capital appreciation by investing a potion in equity
related instruments.
Investment option Dividend Plan,Growth Accumulation Plan
And Auto earnings
Liquidity Sale and repurchase on all business days.
NAV calculation All business days.
Redemption proceeds Will be dispatched within 3 business days.
Tax benefits Indexation benefits, no Gift Tax, no Wealth tax.
Minimum application amount Dividend plan / Auto earning payout
New investor : Rs. 10000
Existing investor : Rs. 500
Growth accumulation plan
New investor : Rs. 5000
Existing investor : Rs. 500
Exit load : for investment of Rs. 5 crore and above
Average Maturity 2.4 years

54
 MONTHLY INCOME PLAN – MIP PLUS

An open – ended fund

Monthly Income is not assured and is subject to the availability of distributable surplus.

Fund features
Who should invest ? An open ended income scheme having periodical
distributions with no assured monthly returns. MIP
attempts to provide income on a monthly basis and
is therefore particularly suited for investors seeking
regular source of income .
Investment Objective The objective is to generate regular income through
investments in debt securities to enable periodical
income distribution and also to generate long term
capital appreciation by investing a potion in equity
related instruments.
Investment option Dividend Plan,Growth Accumulation Plan
And Auto earnings
Liquidity Sale and repurchase on all business days.
NAV calculation All business days.
Redemption proceeds Will be dispatched within 3 business days.
Tax benefits Indexation benefits, no Gift Tax, no Wealth tax.
Minimum application amount Dividend plan / Auto earning payout
New investor : Rs. 10000
Existing investor : Rs. 500
Growth accumulation plan
New investor : Rs. 5000
Existing investor : Rs. 500
Average Maturity 1.8 years

55
 GROWTH FUND
An open – ended Equity Scheme

Fund features
Who should invest ? The scheme is suitable for investors willing to accept
the risks that come with investing in equities.
Investment Objective The objective is to provide investors long term
capital appreciation.
Investment option a) Growth b) Dividend
Liquidity Sale and repurchase on all business days.
NAV calculation All business days.
Redemption proceeds Will be dispatched within 3 business days.
Tax benefits Tax free dividends in the hands of investors.
Indexation benefits, no Gift Tax, no Wealth tax.
Minimum application amount New investor : Rs. 5000
Existing investor : Rs. 500

56
 ACCOUNTING KNOWLEDGE

The mutual funds in India are required to follow the accounting policies as laid down by
the SEBI(Mutual Fund) Regulations 1996 and the amendments in 1998.

Balance sheet of a mutual fund is different from the normal balance sheet of a bank or a
company. All of the fund’s assets belong to the investors and are held in the fiduciary
capacity for them. Mutual fund employees need to be aware of the special requirements
concerning accounting for the fund’s assets, liabilities and transactions with investors and
the outsiders like banks, securities custodians and registrars. This knowledge will help
them better understand their responsibilities and their place in the organization, by getting
an overview of the functioning of the fund.

Even the mutual fund agents need to understand the accounting for the fund’s transaction
with investors and how the fund accounts for its assets and liabilities ,as the knowledge is
essential for them to perform their basic role in explaining the mutual fund performance
to the investor. For example, unless the agent knows how the NAV is computed, he
cannot use even simple measures such as NAV change to assess the fund performance.
He also should understand the impact of dividends paid out by the fund or entry/exit
loads paid by the investor on the calculation of the NAV and therefore the fund
performance. The end product of mutual funds accounting is the accurate pricing of
these investment vehicles and the correct assignment of investment income to unit
holders.

CALCULATION OF NAV

The most important of the calculation is the valuation of the assets owed by the funds.
Once it is calculated, the NAV is simply the net value ofassets divided by the number of
units outstanding. The detailed methodology for the calculation of the asset value is given
below. Net Asset value =Sum of market value of shares/debentures + Liquid assets/cash

57
 held (if any) +Dividends/interest accrued-Amount due on unpaid assets -Expenses
accrued but not paid

NAV of all schemes must be calculated and published at least weekly for closed end
schemes and daily for open end schemes. NAV’s for a day must also be posted on AMFI
website by 8 P.M. on that day.

Purchase and sale of investment securities, Valuation of al investment securities held,

Other assets and liabilities and, Units sold or redeemed are the important factors that
affects NAV.

THE IMPACT ON THE FUND AND THE INVESTOR

 It should be noted that although this tax is payable by the fund on its distributions and out
of its income, the investors pays indirectly since the fund’s NAV, and therefore the value
of his investment will come down by the amount of tax paid by the fund. For example, if
a closed end fund declares a dividend distribution of Rs.100, Rs.10.20 (10.20%) will be
the tax in the hands of the funds. While the investor will get Rs.100, the fund will have
Rs.10.20 less to invest. The fund ‘current cash flow will diminish by Rs. 10.20 paid as a
tax, and its impact will be reflected in the lower value of the fund’s NAV and hence
investor’s investment on a compounded basis in future periods.

 Also , the tax bears no relationship to the investor’s tax bracket and is payable by
the fund even if the investor’s income does not exceed the taxable limit prescribed
by the Income Tax Act

In fact, since the tax is on distributions, it makes income schemes less attractive in
comparison to the growth schemes, because the objective of the income schemes is to
pay regular dividends.

 The fund cannot avoid the tax even if the investor chooses to reinvest the
distribution back into his fund. For example, the fund will still pay Rs.10.20 tax
on the announced distribution, even if the investor chooses to reinvest his
dividends in the concerned schemes.

58
Taxation in the hands of the investor

Tax rebate available to individual investor on subscriptions to Mutual Funds

In accordance with the section 88 of the Income Tax Act,

Investments up to Rs.10, 000 in an ELSS qualifies for tax rebate of 20%.

In case of “infrastructure” mutual fund units, investments up to Rs.80, 000 is eligible for
20% tax rebate.

However, total investment eligible for tax rebate under section 88 is not allowed to
exceed Rs. 60,000 (Rs.80,000 in case of investment qualifying under ‘infrastructure’.

Dividends received from Mutual Funds

From the accounting year 1999/2000, income distributed by a fund is exempt in the hands
of the investors.

Capital gains on sale of Units

However, if the investors sells his units and earns “Capital Gains” , the investor is subject
to the Capital Gains Tax as under:

 If units are held for not more 12 months, they will be treated as short term capital
assets, otherwise as long term capital assets. (This period is 36 months for assets
other than shares and listed securities).

 Tax law definition of capital gains = sale consideration- (Cost of Acquisition +

Cost of improvements + cost of transfer)

 If the units were held for over one year, the investors gets the benefit of
“indexation”, which means his purchase price is marked up by an inflation index ,
so his capital gains amount is less than otherwise. Purchase price of a long term
capital assets after indexation is computed as, Cost of acquisition or
improvement= actual cost of acquisition or improvement *cost inflation index for
year of transfer/cost inflation index for year of acquisition or improvement or for
1981, whichever is later.

59
 MUTUAL FUND PERFORMANCE
The Investor Perspective

The investor would actually be interested in tracking the value of his investments,
whether he invests directly in the market or indirectly through the mutual funds. He
would have to make intelligent decisions on whether he gets an acceptable return on his
investments in the funds selected by him, or if he needs to switch to the fund. He
therefore, needs to understand the basis of appropriate performance measurement for the
funds, and acquire the basic knowledge of the different measures of evaluating the
performance of a fund. Only then would he be in a position to judge correctly whether his
fund is performing well or not.

The Advisor’s Perspective

If you are an intermediary recommending a mutual fund to a potential investor, he

would expect you to give him proper advice on which funds have a good performance
track record. If you want to be an effective investment advisor, then you too have to
know how to measure and evaluate the performance of the different funds available to the
investor. The need to compare the performance of the different funds requires the advisor
to have the knowledge of the correct and appropriate measures of evaluating the fund
performance.

Different Performance Measures

Remember that there are many ways to evaluate the performance of the fund. One must
find the most suitable measure, depending upon the type of the fund one is looking at, the
stated investment objective of the fund and even depending on the current financial
market condition. Let us discuss few common measures.

60
Change in NAV- The most common measure

Purpose: If an investor wants to compute the Return on Investment between two dates,
he can simply use the Per Unit Net Assets Value at the beginning and the end periods and
calculate the change in the value of the NAV between the two dates in absolute and
percentage terms.

Formula: for NAV change in absolute terms:

(NAV at the end of the period) –(NAV at the beginning of the period)

For NAV change in percentage terms:

(Absolute changes in NAV /NAV at the beginning)*100.

If period covered is less /more than one year: for annualized NAV Change

{[(absolute change in NAV/NAV at the beginning)/months covered]*12}*100

Suitability: NAV change is most commonly used by the investors to evaluate fund
performance, and so is also most commonly published by the mutual fund managers. The
advantage of this measure is that it is easily understood and applies to virtually any type
of fund.

Interpretation: Whether the return in terms of NAV growth is sufficient or not should be
interpreted in light of the investment objective of the fund, current market conditions and
alternative investment returns. Thus, a long term growth fund or infrastructure fund will
give low returns in its initial years. All equity funds may give lower returns when the
market is in bearish phase.

Limitation: However, this measures does not always give the correct picture , in case
where the fund has distributed to the investors a significant amount of dividend in the

61
interim period. If in the above example ,year end NAV was Rs.22 after declaration and
payment of dividend of Re.1, the NAV change of 10% gives an incomplete picture.

Therefore, it is suitable for evaluating growth funds and accumulation plans of debt and
equity fund, but should be avoided for income funds and funds with withdrawal plans.

Purpose: This measure corrects the shortcomings of the NAV Change measure, by
taking into account of the dividends distributed by the fund between the two NAV dates,
and adding them to the NAV change to arrive at the total return.

Formula:[(distributions+ change in NAV)/NAV at the beginning of the period]*100

Suitability: total return is the measure suitable for all types of funds. Performance of
different types of funds can be compared on the basis of Total Return. Thus, during a
given period, one can find out whether a debt fund has given better returns than the
equity fund. It is also more accurate than simple NAV change, because it takes into
account distribution during the period. While using Total Return, performance must be
interpreted in the light of market conditions and investment objectives of the fund.

Limitation: although more accurate than NAV change, simple Total Return as calculated
here is still inadequate as a performance measure, because it ignores the fact that
distributed dividends also get reinvested if received during the year. The investor’s total
return should take account of reinvestment of interim dividends.

62
 RETURN ON INVESTMENT

Purpose: the short coming of the simple total return is overcome by the total return with
reinvestment of the dividends in the funds itself at the NAV on the date of the
distribution. The appropriate measure of the growth of an investor’s mutual fund holdings
is therefore, the return on investment.

Formula: {(units held+ dividend/ex-dividend NAV)*end NAV}-begin NAV/begin

NAV*100

Suitability: Total return with distributions reinvested at NAV is a measure accepted by

mutual fund tracking agencies such as Cresedence in Mumbai and Value Research in
New Delhi. It is appropriate for measuring performance of accumulation plans, monthly/
quarterly income schemes that distribute interim dividends.

THE INCOME RATIO

Formula: a fund’s income ratio is defined as its net investment income dividend by its
net assets for this period.

Purpose/Suitability: this ratio is a useful measure for evaluating income-oriented fund,

particularly debt funds. It is not recommended for funds that concentrate primarily on
capital appreciation.

Limitation: the income ratio cannot be considered in isolation; it should be used only to
supplement the analysis based on the expense ratio and total return.

Tracking Mutual Fund Performance

Having identified appropriate measures and benchmarks for the mutual funds available in
the market, the challenge is to track fund performance on a regular basis. This is indeed

63
the key towards maximizing wealth through mutual fund investing. Proper tracking
allows the investor to make informed and timely decisions regarding his fund portfolio –
whether to acquire attractive funds, dispose off poor performers or switch between
funds/plans.

To be able to track fund performance, the first step is to find the relevant information on
NAV, expenses cash flow, appropriate indices and so on. The following are the sources
of information in India:

 Mutual Funds’ Annual and Periodic Reports: These include data on the fund’s
financial performance, so indicators such as income/expense ratios and Total
Return can be computed on the basis of this data. The annual report includes a
listing of the fund’s portfolios holdings at market value, statement of revenue and
expenses, unrealized appreciation/depreciation at year-end, and changes in the net
assets. On the basis of the annual report, the investors can develop a perspective
on the quality of the fund‘s assets and portfolio concentration and risk profile,
besides computing returns. He can also assess the quality of the fund management
company by reviewing their entire scheme’s performance. The profit and loss
account part of the annual report will also give details of transaction costs such as
brokerage paid, custodian/registrar fees and stamp duties.

 Mutual Funds’ Websites: With the increasing spread of the internet as a

medium, all mutual funds have their own websites. SEBI even requires funds to
disclose certain types of the information on these sites- for example, the Portfolio
Composition. Similarly, AMFI itself has a websites, which displays all of its
member’s funds’ NAV information.

 Financial papers: Daily newspapers such as the Economic Times provide daily
NAV figures for the open end schemes and share prices of the closed end listed
schemes. Besides, weekly supplements of the economic newspapers give more
analytical information on the fund performance. For example, Business Standard- the
Smart Investor gives total returns over 3month, 1 year and 3 year periods, besides the
fund size and rankings with the other funds separately for Equity, Balanced, Debt,

64
Money Market, Short Term Debt and Tax Planning Funds. Similarly, Economic
Times weekly supplement gives additional data on open end schemes such as Loads
and Dividends besides the NAV and other information, and performance data on
closed end scheme.

Fund Tracking Agencies: In India, agencies such as Credence and Value Research
are a source of information for mutual fund performance data and evaluation. This
data is available only on request and payment.

 Newsletters :Many stockbrokers, mutual fund agent and banks and non-ranking
firms catering to retail investors publish their own newsletters, sometimes free or
else for their subscribes, giving fund performance data and recommendations.

 Prospectus: SEBI Regulations for mutual fund require the fund sponsors to
disclose performance data relating to scheme being managed by the concerned
AMC, such as the beginning and end of the year.

65
 EVALUATING FUND PERFORMANCE
Importance of Benchmarking in Evaluating Fund Performance

The measures mentioned above are obsolete, i.e., none of the measure should be used to
evaluate the fund performance in isolation. A fund’s performance can only be judged in
relation to the investor’s expectations. However, it is important for the investor to define
his expectations in relation to the certain “guideposts” on what is possible to achieve, or
moderate his expectations with realistic investments alternatives available to him in the
financial market. These guideposts or the indicators of performance can be thought of as
benchmarks against which a fund’s performance ought to be judged. For example, an
investor’s expectations of returns from equity fund should be judged against how the
overall stock market performed , in the other words by how much the stock market index
itself moved up or down, and whether the fund gave a return that was better or worse than
the index movement. In this example, we can use a market index like S&P CNX Nifty or
BSE SENSEX as “benchmarks to evaluate the investor’s mutual fund performance.

The advisor needs to select the right benchmark to evaluate a fund’s performance, so that
he can compare the measured performance figures against the selected benchmark.
Historically, in India, investors’ only options to evaluate the performance of the units
were UTI schemes or the bank fixed deposit interest rates. UTI itself to tend to
“benchmark” its returns against what interest rates were available on bank deposits of 3/5
year maturity. Thus, for a long period, US 64 scheme dividends were compared on bank
interest rates and investors would be happy if the Dividend Yield on US 64 units was
greater than comparable deposits interest rate. However, with increasing investment
options in the market, bank interest rates should not be used to judge a mutual fund’s
performance in all cases. Let us therefore look at how to choose the correct benchmarks
of mutual fund performance.

66
 CHOOSING AN APPROPRIATE PERFORMANCE

BENCHMARK

The appropriate benchmark for any fund as to be selected by reference to:

i. The asset class it invests in. Thus, an equity fund has to be judged by an
appropriate benchmark from the equity markets, a debt fund performance against
a debt market bench mark and so on; and

ii. The fund’s stated investment objective. For example, if a fund invests in long
term growth stocks, its performance ought to be evaluated against a benchmark
that captures a growth stocks’ performance.

There are in fact three types of benchmarks that can be used to evaluate a fund’s
performance relative to the market as whole, relative to other mutual funds, comparable
financial products or investments options open to the investor.

Benchmarking relative to the market:

Equity Funds

Index Funds- a Base Index: If an investor were to choose an Equity Fund, now being
offered in India, he can expect to get the same return on his investments as the return on
the equity index used by the fund as its benchmark, called the Base Index. The fund
would invest in the index stocks, and expects NAV changes to mirror the changes in the
index itself. The fund and therefore the investor would not expect to beat the benchmark,
but merely earn the same return as the index.

Tracking Error: In order to obtain the same returns as the index, an index fund invests
in all of the stocks included in the index calculation, in the same proportion as the stocks’
weight age in the index. The tracking error arises from the practical difficulties faced by
the fund manager in trying to always buy or sell stocks to remain in line with the weight
age that the stock enjoys in the index.

67
“Active” Equity Funds: An index fund is passively managed, to track a given index.
However, most of the other equity funds/ schemes are actively managed by the fund
managers. If an investor holds such an actively managed equity fund, the fund manager
would not specify in advance the benchmark to evaluate his expected performance as in
case of an index fund. However, the investor still needs to know whether the fund
performance is good or bad. To evaluate the performance of the equity scheme, therefore,
we still need to select an appropriate benchmark and compare its return to the returns on
the benchmark; usually this means using the appropriate market index. The appropriate
index to be used to evaluate a broad based equity fund should be decided on the basis of
the size and the composition of the fund’s portfolio. If the fund in question has a large
portfolio, a broader market index like BSE 100 or 200 or NSE 100 may have to be used
as the rather than S&P CNX NIFTY or BSE 30. An actively managed fund expects to be
able to beat the index, in other words give higher returns than the index itself.

Somewhat like the Index Funds, the choice of benchmarks in case of Sector Funds is
easier. Clearly, for example, an investor in InfoTech or Pharma sector funds can only
expect the same return as the relative sectoral indices. In such cases, he should expect the
same or higher returns than the InfoTech or Pharma sector index if such index exists. In
other words, the choice of the correct equity index as a benchmark also depends upon the
investment objective of the fund. The performance of a small cap fund has to be
compared with the small cap index. A Growth Fund investing in new growth sectors but
is diversified in many sectors can only be judged against the appropriate growth index if
available. If not, the returns can only be compared to either a broad based index or a
combined set of sect oral indices.

Evaluating the Fund Manager /Asset Management Company

While every fund is exposed to market risks, good funds should at least match major
market indices, and be able to sustain bearish market phases better than other funds.
Good funds manager operate long term perspective, do not sacrifice investor value by
excessive trading which generates a high level of transaction costs, and will turn out more
consistent performance, which is more valuable than one-time high and otherwise volatile
performance record.

68
The investor must evaluate the fund manager’s track record, how his schemes have
performed over the years. There is a difference between institution-managed funds that
have a team of managers with successful records as against funds that are managed by the
individuals only. The team approach also helps by offsetting bad performance by one
manager with good performance from the others in the team. In practice, however, single
person managed funds are widely prevalent in the countries like the U.S. In India, many
individuals operate as Portfolio Managers. However, currently, we have mainly
institution sponsored funds, either bank-sponsored, corporate owned or government /
financial institution –owned. The reliability and track record of these sponsors has been
an important factor in investor perceptions.

In the final analysis, Asset Management Companies and their fund managers ought to be
judged on consistency in the returns obtained, and performance record against competing
or peer group managers running similar funds. While transaction costs incurred are also
an important factor, this information is not generally available in India.

Marketing of Mutual Funds

The present marketing strategies of mutual funds can be divided into main headings:
 Direct Marketing
 Selling through intermediaries
 Joint Calls

Direct Marketing:

This constitutes 20 percent of the total sales of mutual funds. Some of the important tools
used in this type of selling are:

 Personal Selling :In this case the customer support officer of the fund at a
particular branch takes appointment from the potential prospect. Once the
appointment is fixed, the branch officer also called Business Development
Associate (BDA) in some funds then meets the prospect and gives him all details
about the various schemes being offered by his fund. The conversion rate in this
mode of selling is in between 30% - 40%.

69
  Telemarketing: In this case the emphasis is to inform the people about the fund.
The names and phone numbers of the people are picked at random from telephone
directory. Sometimes people belonging to a particular profession are also
contacted through phone and are then informed about the fund. Generally the
conversion rate in this form of marketing is 15% - 20%.

 Direct Mail: This is one of the most common methods followed by all mutual
funds. Addresses of people are picked at random from telephone directory. The
customer support officer (CSO) then mails the literature of the schemes offered by
the fund. The follow up starts after 3 – 4 days of mailing the literature. The CSO
calls on the people to whom the literature was mailed. Answers their queries and
is generally successful in taking appointments with those people. It is then the job
of BDA to try his best to convert that prospect into a customer.

 Advertisements in newspapers and magazines: The funds regularly advertise in

business newspapers and magazines besides in leading national dailies. The
purpose to keep investors aware the schemes offered by the fund and their
performance in recent past.

 Hoardings and banners: In this case the hoardings and banners of the fund are
put at important locations of the city where the movement of the people is very
high. Generally such hoardings are put near UTI offices in order to tap people
who are at present investing in UTI schemes. The hoarding and banner generally
contains information either about one particular scheme or brief information about
all scheme of fund.

Selling through Intermediaries

Intermediaries contribute towards 80% of the total sales of mutual funds. These are the
people/ distributors who are in direct touch with the investors. They perform an important
role in attracting new customers. Most of these intermediaries are also involved in selling
shares and other investment instruments. They do a commendable job in convincing
investors to invest in mutual funds. A lot depends on the after sale services offered by the
intermediary to the customer. Customers prefer to work with those intermediaries who

70
give them right information about the fund and keep them abreast with the latest changes
taking place in the market especially if they have any bearing on the fund in which they
have invested.

 Regular Meetings with Distributors: Most of the funds conduct monthly/ bi

monthly meetings with their distributors. The objective is to hear their complaints
regarding service aspects from funds side and other queries related to the market
situation. Sometimes, special training programmed is also conducted for the new agents/
distributors. Training involves giving details about the products of the fund, their present
performance in the market, what the competitors are doing and what they can do to
increase the sales of the fund.

Joint Calls:
This is generally done when the prospects seems to be a high net worth investor. The
BDA and the agent (who is located close to the HNI’s residence or area of operation)
together visit the prospect and brief them about the fund. The conversion rate is very high
in this situation, generally around 60%. Both the fund and the agent provide even after
sale services in this particular case.

71
 LIFE CYCLE AND WEALTH CYCLE STAGES

Life cycle guide to financial planning

Financial goals and plans depend to a large extent on the expenses and cash flow
requirement of individuals. It is well known that the age of the investors is an important
determinant of financial goals. Therefore financial planners have segmented investors
according to certain stages I their life cycle as follows:

LIFE CYCLE FINANCIAL ABILITY TO CHOICE OF

STAGE NEEDS INVEST INVESTMENT
Childhood stage Taken care of by Investment of gifts Long term
parents
Young unmarried Immediate and short Limited due to Liquid plans and
term higher spending short term
investment some
exposure to equity
and pension
products
Young married Short and Limited due to Medium to long –
stage intermediate term higher spending term investment
Housing and Cash flow Ability to take risks
insurance needs requirements are Fixed income
Consumer finance also limited insurance and equity
needs products
Young married Medium to long Limited Financial Medium to long-
with children term children’s planning needs are term investments
education Holidays highest at this stage Ability to take risks
and consumer is ideal for Portfolio of
finance Housing discipline spending products for growth

72
 and saving regularly and long term
Married with older Medium term needs Higher saving Medium term
children for children rations investment with
recommended for high liquidity needs
intermittent for Portfolio of
intermittent cash products including
flows higher equity debt ant
pension plans
Retirement stage Short to medium Lower saving ratios Medium term
term Higher requirement investment
for regular cash Preference for liquid
flows and income
generating products
Low appetite for
risky investment

73
 CHARACTERISATION OF LIFE CYCLE OF
INVESTORS

LIFE STAGES
 Birth and education stage
 Earning stage
 Retirement stage
The birth and education stage is the first stage where person is almost dependent and
having no or very little income in the form of pocket money. He even do not think for
any investment. But at this stage the he is very curious to know about investments.
Earning stage on an average begins at the age of 22 years and he earn more as compare to
his expenses. Major volume of investment comes from this stage because of more
savings. At the retirement stage there is slowdown in income and expenses increase.
At each stages of life cycle of investors there is different needs occur and on its basis
different investment objectives arise.

74
 WEALTH CYCLE CLASSIFICATION OF INVESTORS

UNDERSTANDING where you are in the individual investor life cycle is an important
element of managing an effective investment portfolio. The investor life cycle refers to
the different stages of investment ownership, from the initial purchase, to the sale of the
investment. The most commonly used investor life cycle includes the accumulation
phase, the consolidation phase and the spending and gifting phases. The asset allocation
decisions are usually different at the various stages of the investor life cycle. We have all
heard that we should invest in more equities at an early age. But while age is important
for asset allocation, its importance is relevant only because our conditions and resources
change over time. Individuals at different stages of the investor life cycle can be of the
same age, but would still need to have different asset allocation strategies. The following
table illustrates:

STAGE FINANCIAL NEEDS INVESTMENT

PREFERENCES
Accumulation stage Investing for long term Growth option and long
identified financial goals term products. High risk
appetite
Transition stage Near term needs for funds Liquid and medium term
as per specified needs draw investment. Preference for
closer income and debt products.
Reaping stage Higher liquidity Liquid and medium term
requirements investment ., for income
low risk appetite
Inter generation transfer Long term investment of Low liquidity needs ,
inheritance Ability to take risks and
invest for the long term
Sudden wealth surge Medium to long term Wealth preservation.
Preference for low risk
products.

75
ASSET ALLOCATION
Asset Allocation refers to the process of deciding the composition of a portfolio. In order
to achieve the goals of a financial plan, investors should allocate their funds to equity,
debt and other asset classes, according to the risk and return features of these classes.
This process is called asset allocation.

Asset Allocation recommendation

Benjamin Graham recommends the following allocations

Basic Managed Portfolio 50% in diversified equity value funds

25% in government securities fund
25% in high grade corporate bond fund
Basic Indexed Portfolio 50% in stock market index fund
50% in bond market index fund
Simple Managed portfolio 85% in balanced fund
15% in medium term bond fund
Complex Managed Portfolio 20% in diversified equity fund
20% in aggressive growth fund
10% in specialty fund
30% in long term bond funds
20% in short term bond funds
Readymade Portfolio Single index fund with 60% in equity and
40% in debt

76
 BOGLE’S STRATEGIC ASSET ALLOCATION

Bogle’s asset allocation strategy involves combing the investors’ age, risk profile and
preferences in the asset allocation pattern. He recommends the following:

Older investors in the distribution phase 50% equity : 50% debt

Younger investors in distribution phase 60% equity : 40% debt
Older investors in accumulation phase 70% equity : 30% debt
Younger investors in accumulation phase 80% equity : 20% debt

Bogle also suggests a rule of thumb for asset allocation. An investor’s allocation to debt
should be equal to his age, increases as he ages.
Model Portfolios that can be recommended for investors according to their Life
Cycle Stages
The model portfolio that has been recommended by Jacobs for investors is as follows:

INVESTOR RECOMMENDED MODEL

PORTFOLIO
Young unmarried professional 50% in aggressive equity funds
25% in high yield bond funds, growth and
income funds
25% in conservative money market funds
Young couple with 2 incomes and 2 10% in money market funds
children 30% in aggressive funds
25% in high yield bond funds and long
term growth funds
35% in municipal bond funds
Older couple single income 30% in short term municipal funds
35% in long term municipal funds
25% in moderately aggressive equity
10% in emerging growth equity

77
TAX PLANNING
In recent years mutual funds proovs to be very important instruments for the tax
planning. Tax planning in case of investment is not only related to prevent tax but also
concerned with getting the good returns at the same time.
Some common mistakes people do are wrong selection of schemes, do not have proper
timing of investment, poor amount allocation, and the hurry in investment for tax saving.
Gonernment gives options for tax saving instruments in section 80C of income tax act
1961. Equity linked saving schemes (ELSS) is a good option of such planning. The
lockin period in elss is small is three years. But still it is adviced to go for long terms
because equity market provides good return in long term. As observed one can expect 12
to 15 percent return in equity market. It provides the return beating the inflation rate. So
in this way ELSS becomes investors faveroit [Link] if you choos dividend
option then dividend in the hand of investor is also tax free.

RESEARCH OBJECTIVES

 To understand mutual fund and its functioning and various schemes of mutual
fund.

 To identify the loop holes of mutual fund industry

 To find out how many investment advisors are interested in dealing of mutual
fund.

 To analyze the role of financial advisor for mutual fund investors.

 To find out how many investment advisors are willing to work.

This study done in Delhi NCR will help to understand the growing mutual fund market
in India. This study is helpful to find out the general opinion about mutual fund and how
they react to different schemes of funds on the basis of need. It also covers why/ why not
investors are availing the services of financial advisors.

78
The main objective of this project is concerned with getting the opinion of people
regarding mutual funds and what they feel about availing the services of financial
advisors.

79
 RESEARCH METHODOLOGIES

I have done systematic planning to conduct the study. This research is carried out to
describe the phenomenon or market characteristics. This study is done to understand
buyer behavior and describe characteristics of the target market. This study is done for
evaluation of the customer preference. I have used methods to consult people through
Seminar, Meeting, Door to Door meeting, friend’s circle. I undertaken meeting of about 8
people and consulted about 100 people.

RESEARCH DESIGN:

Research design is the framework that has been created to find answers to research
questions.

 Unit of Analysis: Mutual Fund Client’s.

 Characteristics of interest:

 Client’s knowledge about Mutual Fund

DATA COLLECTION

SOURCES OF DATA:

a) ) Secondary Source: Secondary data are collected by Internet, Magazines and

Newspapers and books and some financial advisors.

b) Primary Source: The primary data is collected using sampling method and by survey
using questionnaire

Sample Planning: Sample Size: 100 Respondents

A Sample Design is a definite plan for obtaining a sample from a given population. It
refers to the technique or method the researcher would adopt in selecting items for
thesample.

80
Data Collection Method

I have used ‘Survey Method’ to collect data. I have collected data using questionnaire.
Questionnaire Plan I have used ‘Structured Questionnaire’ for gathering the required data
through contacting respondent personally.

Type of Information: I have collected Fact, Awareness, Attitude, Future action plan and
reason using questionnaire.

Type of Questions: ‘Multiple Choice’ type are asked in the questionnaire for data
collection.

Data Analysis & Interpretation: Data Analysis is based on the data collected by way of
Questionnaires. From the collected data findings are extracted. The data is tabulated and
frequency distribution chart is prepared.

SAMPLE AREA: Delhi - NCR

81
 GRAPHICAL DATA ANALYSIS

INVESTORS PRIORITY TO
1-Safety
2-Higher return on investment
3-Liquidity

Safety
Higher Return
Liquidity

82
FREQUENCY OF INVESTMENT

Series 1
6

0
Regular once a while none of these

83
OBJECTIVE BEHIND INVESTMENT

29% 4%
Income Generation
Tax Saving
67% Others

Interpretation
As seen above the majority of the people go with income generation objectives of
investment. the people lies in the income generating age group generally go for income
generating objectives. Also income generation and tax saving are the important objectives
of investing as compare to rest.\
SOURCES OF AWARENESS

Newspaper/Magazine
10%
Friends/Colleagues
12%
48%
TV Advertisements
17%

13% Factsheets

Others

84
INTREPRETATION- Newspaper and magazines are the biggest advertisement source
of awareness then followed by TV advertisements and other source of awareness.

SPECIFIC APPREHENSIONS ABOUT INVESTING IN MUTUAL FUNDS

20% Lack of awareness

51% 12% Lack of trust

18% Inconvenience
Others

85
TIME PERIOD FOR INVESTMENT

13% Less than 1 year

19% 50% 1 to 2 year
2 to 5 years
17% More than 5 years

86
PRIORITY OF INVESTORS TO INVEST IN VARIOUS FINANCIAL
PRODUCTS

18% Bank deposits

51% Mutual fund

20%
Government Bonds
12% Equity market

INTREPRETATION- Share of bank deposits is still much higher then mutual funds as
per the survey. The main reason is the unawareness about the return and advantages of
the mutual funds and fear of equity market.

87
OCCUPATION WISE DISTRIBUTION

6%
35% Service
13%
Business
Professional
19%
Retired
27% Dependents

AWARENESS OF MUTUAL FUNDS

Awareness about mutual fund

YES
NO

INTREPRETATION- About 61 percent of respondent were aware about mutual funds

and 31 percent of people were not aware about mutual funds but some of them are exited
to know about mutual funds.

88
AWARENESS OF TAX BENEFITS

19%

YES
NO
81%

89
 INSURANCE ADVISOR SURVEY
GENDER OF THE RESPONDENT
Frequency Percent
Female 15 23.1
Male 50 76.9
Total 65 100.0

Column1
23.1

Male
Female

76.9

INFERENCE
As we can see from the figure itself that there is a sex ratio difference between males
and females, which is 3:1 in the insurance industry. It is mainly because advisor’s job is
demanding in terms of rigorous fieldwork and hence women finds difficult to cope up
with it

90
 MARITAL STATUS OF THE RESPONDENT

Frequency Percent
Married 16 24.6
Unmarried 49 75.4
Total 65 100.0

Column1
24.6

Married
Unmarried

75.4

INFERENCE
Married people seems to be more mature as compare to the unmarried ones. More
married people work, as advisors and company prefer to employ them in comparison to
unmarried ones because being family people they tend to take their work more seriously.
They have more sence of responsibility.

91
EDUCATIONAL QUALIFICATION OF THE RESPONDENT

Frequency Percent
Inter 5 7.7
Graduate 40 61.5
Professional 20 30.8
Total 65 100.0

Column1

30.8 7.7

Inter
Graduate
Professional

61.5

INFERENCE
Among insurance advisors, it has been observed that 61.5% of them are graduates in
comparison to professionals like CFAs,CAs or MBA’s who just 30.8% are. While
intermediate pass people just make 7.7% of the whole lot.

92
 MODE OF TRAINING BY IRDA UNDERGONE BY
RESPONDENT

Frequency Percent
Classroom 42 64.6
Online 12 18.5
None 11 16.9
Total 65 100.0

Percent
16.9

Classroom
Online
18.5 None

64.6

INTERFENCE: Insurance companies provide training in three modes –classroom

training, online training and part time training. We find out that 64.6% of the respondents

had preferred to take classroom training as according to them it gives a better hang of the

93
insurance business operations since you are one on one with the training manager and

hence you can ask any queries then and there only.

94
 CONTACTING THE CUSTOMER BY THE RESPONDENT

Frequency Percent
Personal meeting 11 13.8
Telephone &
10 15.4
references
Friends 46 70.8
Total 65 100.0

Column1

13.8

15.4 Personal meeting

Telephone& referance
Friends

70.8

INFERENCE: When respondents were asked that what are the ways they use for
contacting the clientele base they are having then 70.8% of them named telephone calls,
personal meetings and references as the major means of keeping in touch with their
customers while only 15.4% named telephone calls and references as their sources.

95
10. What aspect do you consider while become an agent advisor?

Career

60
60

50
Career

40

30 20
15
20

10 2 3

0
H.W. Student Business Retired Other

Money

60
60

50
MONEY

40

30
15
20
8 10
7
10

0
H.W Student Business Retired Other

96
Recognition

50
50
45
Recognition

40
35
30
25 20
20
15 10 10 10
10
5
0
H.W Student Business Retired Other

Other

50
50
45
40
35
Others

30 25
25
20
15 10 10
10 5
5
0
H.W Student Business Retired Others

97
 FINDINGS & ANALYSIS
At the survey conducted upon 100 people, 40% are already mutual fund investors or are
interested to invest in future and the remaining 60% are not interested in it. So there is
enough scope for the advisors to convert those 65 participants into investors through their
convincing power and great communication skills.

• The awareness level about Mutual Funds is quite low in the Delhi & NCR among
client.

• Approximately 40% of Clients are aware of and interested in dealing of Mutual Funds.
The reason for not interested in dealing of Mutual Fund is unawareness about Mutual
Fund and risk.

• When asked about the most alluring feature of MFs, most of them opted for
diversification, followed by reduction in risk, helps in achieving long term goals and
helps in achieving long term goals respectively.

• Having a longer locking period still most of people invest in insurance to save tax
followed by PPF. Insurance is widely used as tax-saving instrument.

• When asked about one reason for not availing the services of financial advisors, about
25 of them pointed the advisors as expensive. 13 of them wished to be in control of their
own assets.12 of them said that they find it difficult to get trustworthy advisors.

• Most of participants regarded asset allocation as the major reason for going for financial
advisors. 25% of them needed them to explain them the various investment options
available. 20% of them wanted to make sure that they were saving enough to meet their
financial goals. While just gave the reason- lack of time.

• Most of the investor preferred to invest at a young unmarried stage. Even 32% persons
were ready to invest at a stage of young married with children but people with older
children avoid investing due to increased expenses. But again the percentage rose to 27%
at pre-retirement stage.

98
 Insurance advisor is an agent, broker, consultant or benefit manager, insurance
advisors are the critical link between you, consumer and insurance companies.
They provide and service insurance products while educating and advising you on
how to manage risk and make informed insurance choices. Advisor’s role
increasingly important to individuals and small businesses in finding cost saving
measures and coverage options. Advisors are highly trained insurance
professionals who will guide you through the complex task of choosing
appropriate overages at an affordable cost. Advisors are dedicated to serving the
long term interests of consumers.
 Advisors are used extensively by the insurance industry to market insurance and
related products. Advisors are not employees of insurance carriers but are instead
independent contractors for the carriers. Carriers do not have the associated cost
of an employee, cost such as benefits, expense reimbursement and so forth, when
they use an advisor. They simply have the straight cost of the advisor’s
commission.
 The commission is paid monthly as long as the case in force and is usually the
same percentage each year.
 Advisor works for the consumer and can offer and explain the differences
between the varieties of different products from many different insurance carriers.
The agent system has been the primary method of distribution for private health
insurance. Agents are the essential link between the consumer and the insurance
company, providing personal service in the selection of insurance coverage that
meets the clients’ needs.

 Insurance agents, like elected officials, are held accountable to their constituents.
Agents must assure that the clients’ needs are appropriately satisfied. Because an
insured has the ability to change agents with little or no notice, agents are
essentially “up for re-election” everyday.

99
 VALUE OF THE ADVISORS

 The commission or other compensation earned by the insurance agent not only
compensates the agent for the sale of a product but, in addition, professional
agents perform these other basic services for the health consumer:
 Advisors work with clients to evaluate their need for health insurance
protection. This may involve substantial research and fact finding about the
client's needs. This is an on-going process since needs continuously change as a
person's family and employment situations change.
 Advisors educate by explaining the various health plans available and provide
appropriate cost indexes. Advisors make specific recommendations that suit the
client's objectives and budget.
 Often a health insurance plan is designed by the agent to fit a client's special
needs.
 Advisors encourage the client to act in a timely fashion to assure that proper
coverages are in place when they are needed. They also see to it that accurate and
complete information is provided to the insurer to make sure that the client gets
the very best premium available.
 Advisors review coverage on a periodic basis suggesting changes when
appropriate and counseling clients on ways to reduce cost. Often they must assist
their clients in reviewing the need for legal and tax compliance, recommending
other professional assistance when necessary.
 Advisors assist with claims, answer questions and serve as ombudsmen in helping
their clients deal with insurance companies. Agents often spend an enormous
amount of time helping clients assemble the proper documentation needed to file
or follow up on a claim. This is especially true with seniors who receive Medicare
benefits.
Advisors help business owners in communicating their benefit packages to
employees, often assisting the employee in seeing how the benefits coordinate
with their personal financial programs as well as those provided by government
entities.

100
 SWOT ANALYSIS

Strengths:
• Employees are highly empowered.
• Strong Communication Network.
• Good co-operation between employees.
• Number 1 Registrar and Transfer agent in India.
• Number 1 dealer of Investment Products in India.

Weaknesses:
• High Employee Turnover.

Opportunity:

• Growth rate of mutual fund industry is 40 to 50% during last year and it expected that
this rate would be maintained in future also.

• Marketing at rural and semi-urban areas.

Threats:

• Increasing number of local players.

• Past image of Mutual Fund.

101
 RECOMMENDATIONS & SUGGESTIONS

Investors point of view

The question the entire customer, irrespective of the age group and financial status, think
of is- Are Mutual Funds are a safe option? What makes them safe? The basis of mutual
fund industry’s safety is the way the business is defined and regulations of law. Since
mutual fund invest in the capital market instruments, so proper knowledge is essential.

Hence the essential requirement is the well informed seller and equally informed buyer.
Who understands and help them to understand the product (here we can say the capital
market and the money market instruments) is the essential pre-conditions.

Being prudent investors one should:

i. Ask one’s agent to give details of different schemes and match the appropriate ones.
ii. Go to the company or the fund house regarding any queries if one is not satisfied by
the agents.
iii. Investors should always keep an eye on the performance of the scheme and other
good schemes as well which are available in the market for the closed comparison.
iv. Never invest blindly in the investments before going through the fact sheets, annual
reports etc. of the company since, according to the guidelines of the SEBI, the
AMCs are bound to disclose all the relevant data that is necessary for the
investment purpose by the investor.

Companies point of view

Following measures can be taken up by the company for getting higher investments in the
mutual fund schemes.
i. Educate the agents or the salesmen properly so that they can take up the queries of
the customer effectively.

102
 ii. Set up separate customer care divisions where the customers can any time pose their
query, regarding the scheme or the current NAV etc. These customer care units can
work out in accordance with the requirements of the customer and facilitate him to
choose the scheme that suits his financial requirements.

iii. Conduct seminars or programs on about mutual funds where each and every minute
information about the product is outlined including the risk factor associated with
the different classes of assets.

iv. Developed, design separate schemes for rural/semi urban areas and lower the
minimum investment amount from Rs.500.

v. Recruit appropriate number of agents for rural/urban and semi-urban areas.

vi. Make customer care services faster.

vii. Choose appropriate media, newspaper/magazines, T.V. commercials, etc. for

marketing the product and educate the masses.

103
 LIMITATIONS OF THE STUDY

• Due to limitation of time and cost constrains a sample size of only 50 respondents are
chosen.

• Data Analysis and interpretation done may not be that strong due to small sample and
conveyance skill in me.

• The sample extent for research is only Delhi & NCR .

• Some of the respondents may be biased in giving responses.

• My inexperience in research area might have affected results.

104
 CONCLUSION
It is concluded that as per research and analysis the emphasis on mutual funds than other
investment options and the most important role of financial advisors towards investors.
They are work as a hard core pillar during invest in mutual funds who give new direction
and dimension to the flow of personal saving and enable small and medium investors in
remote rural and semi urban areas to reap the benefits of the stock market investment.
Indian mutual funds are thus playing a very important developmental role in allocation of
scares resources in the emerging economy.

As per research and survey there are various firms who provide sufficient services to the
investors due to unawareness among customers regarding services, so the best firms need
to train his employee & executives to upgrade their performance.

The awareness level of investor is low in advisors are interested in dealing in mutual
fund.

105
 BIBLIOGRAPHY

BOOKS:
1. Kotahari,C.R, “ Research Methodology” Wishwa Publication, Second Edition,
2006, New Delhi.

2. Kotler Philip; “Marketing Management” The Prentice Hall of India Pvt. Ltd.
Eleventh Edition, 2008, New Delhi

BUSINESS MAGAZINES

 Investment News Letters

 Business World

 Business Today

 Business Standard

 Analyst Magazine

 Smart Investors

WEBSITES
 [Link]
 [Link]
 [Link]
 [Link]
 [Link]
 [Link]
 [Link]
 [Link]
 [Link]
 [Link]
 [Link]
 [Link]

106
 ANNEXURE
QUESTIONNAIRE

1) Name of the customer

Mr./Mrs./Ms.

2) Address /Contact

3) Bank you are dealing with

4) What occupation you are in?

5) What is the age group you fall in?

a) 20-30 b) 30-40 c) 40-50 d) 50-60 e) above 60

6) What is the per month income of your family?

a) Less than 10,000 b)10,000-30,000 c)30,000-50,000 d)Above 50,000

7) Type of investment

a) Current b) Savings c) Fixed Deposits d) Shares

e) Bonds/Debentures f) Mutual Funds g) Gold/Real Estate

8) Preference

a) Liquidity b) Return c) Tax benefit d) Safety

9) Are you aware of the Mutual Funds?

Yes/No

If yes, then please attempt next question else go to question no.12

107
10) Have you ever invested in Mutual Funds?

If yes, please attempt next five questions else go to question no.11

i) Which scheme did you last invest in?

ii) What returns did you get out of that scheme?

iii) Since how long you are in that scheme?

iv) Would you like to switch to current NPO?

v) Do you have any knowledge of the tax benefits?

vi) From where do you get information about Mutual Funds?

a) Print Media b) Electronic Media c) Friends/Relatives

d) Broker/Investment e) Bank

11) If you’ve never invested in the Mutual funds then attempt the next question

i) What has been the reason of your not investing into the mutual funds?

a) Lack of confidence b) Imperfect knowledge

c) Finds Government securities/bonds better d) other reasons
ii) Are you aware of the SEBI/RBI guidelines?

12) If you are not aware of the Mutual Funds then attempt the next

Are you not interested in generating higher returns?

13. Which feature of the mutual funds allures you most?

Diversification [ ] Professional management [ ]

Reduction in risk and transaction cost [ ] Helps in achieving long term goals[ ]

14. Where from you purchase mutual funds?

Directly from the AMCs [ ] Brokers only [ ]

Brokers/ sub-brokers [ ] Other sources [ ]

108
15. As a middle/High class investor which type of investment would you prefer?

Middle Class [ ] High Income Class [ ]

Share Market [ ] Mutual Fund [ ]

Insurance [ ] Fixed Deposit [ ]

16. Where do you find yourself as a mutual fund investor?

Totally ignorant [ ]

Partial knowledge of mutual funds [ ]

Aware only of any specific scheme in which you invested [ ]

Fully aware [ ]

17. What is the most important reason for not investing in mutual funds?

Lack of knowledge about mutual funds [ ]

Enjoys investing in other options [ ]

Its benefits are not enough to drive you for investment [ ]

No trust over the Mutual fund [ ]

18. Have you invested /are you interested to invest in mutual funds?

Yes [ ] No [ ]

19. Which expertise of the personal financial advisor is demanded most?

Portfolio review

i. Are you availing the services of personal financial advisors?

YES [ ] NO [ ]

ii. According to you, which is the most suitable stage to invest in mutual funds?

Young unmarried stage [ ]

Young Married with children stage [ ]

Married with older children stage [ ]

109
 Pre-retirement stage [ ]

20. What is the major reason for not using financial advisor?

Have access to all resources needed to invest on own [ ]

Believe advisors are too expensive [ ]

Unsure how to find a trustworthy advisor [ ]

Want to be in control of own investment [ ]

21. What is the major reason for using financial advisors?

Want help with asset allocation [ ]

Don’t have time to make my own investment decision [ ]

To explain various investment options [ ]

Want to make sure I am investing enough to meet my financial goals [ ]

Investment recommendation [ ]

Planning to achieve specific financial goals [ ]

Managing assets in retirement [ ]

Access to specialist in areas such as tax planning [ ]

You may be right but the thing is why I should trust?

and why you are not delivering your money to your own country to your family

I can understand your situation and on the social ground I can help you but I will not
involve in any activity which is against my value and my country.

110
111