debt and equity funds in India

Research Project Report

On

“Comparative Study of Debt and Equity

Funds in India”

Submitted in partial fulfillment of PGDM Program

2009-2011

Under the Faculty Guidance of

Ms. Chitra Bhatia Arora

Submitted by

NITIN GUPTA

Roll Number: M200955

AIT-SCHOOL OF MANAGEMENT

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Greater Noida

DECLARATION

I, Nitin Gupta, study in PGDM (VI Trim. Batch 2009-11) of Apeejay Institute of Technology

(School Of Management), Greater Noida hereby declare that I have completed this project on

“Comparative Study on Debt and Equity Funds in India” as per the requirements of Post

Graduate Diploma In Management (PGDM) . The information presented through this project is

true and original to the best of my knowledge.

I declare that the Project work has not been presented to any university or institute towards the

degree/diploma/fellowship or any other similar title

Date: (Nitin Gupta)

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ACKNOWLEDGEMENT

This Research Report which is on “Comparative Study on Debt and Equity Funds in

India” is done by me at the research time, provides details regarding the performance of debt

and equity funds in India and the customer’s perception regarding both the funds

I would like to take this opportunity to thank all the people, who extended their

immense help to complete my project. I would like to thank my Research Report guide

Ms. Chitra Bhatia Arora, who spent her valuable time to discuss about the Research and

her continuous co-operation to me and for guiding and helping me to solve all kinds of

queries regarding the Research work.

Last but not the least I would like to thank all the persons, who have directly or

indirectly helped me with their moral support for the completion of my Research Report.

(Nitin Gupta)

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PREFACE

During post graduation in master of business administration program, students come direct

contact with the market and have to submit the Research Report.

It is great privilege for me to place this report before the readers. Report is related to

“Comparative Study of Debt and Equity Funds in India”. This report is proposed in a

very simple and lucid language. I would also like to start that although every possible

care has been taken to make this report error free. I shall feel highly obliged to all the

readers if the same are brought to my notice. I sincerely express my gratefulness to all

those who have directly or indirectly helped me in preparing this report.

I have spent my 4 months, time to under the guidance of Ms. Chitra Bhatia Arora to

complete the research project.

In brief I can say that this project is a summary of all the information and knowledge,

I have gathered during my Research period.

(Nitin Gupta)

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SUPERVISOR’S CERTIFICATE

This is to certify that Research Project titled, “Comparative Study of Debt and Equity Funds

in India” has been carried out by Nitin Gupta, student of PGDM –II year (VI Trimester) at

Apeejay Institute of Technology, School of Management, Greater Noida, under my supervision.

This is an original work carried out by the said student to the best of my knowledge and I

recommend for the submission of this research project.

(Ms. Chitra Bhatia Arora) Faculty of Finance

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DIRECTOR’S CERTIFICATE

This is to certify that project titled, “Comparative Study of Debt and Equity Funds in India”

carried out by Nitin Gupta, student of PGDM –II year (VI Trimester) at Apeejay Institute of

Technology, School of Management, Greater Noida, under the supervision of Ms. Chitra Bhatia

Arora, Faculty of Finance, AIT, Greater Noida.

This is an original work carried out by the said student to the best of my knowledge and I

recommend for the submission of this research project.

(Prof. R. K. Verma) Executive Director

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Executive Summary

In few years Mutual Fund has emerged as a tool for ensuring one’s financial well being. Mutual

Funds have not only contributed to the India growth story but have also helped families tap into

the success of Indian Industry. As information and awareness is rising more and more people are

enjoying the benefits of investing in mutual funds. The main reason the number of retail mutual

fund investors remains small is that nine in ten people with incomes in India do not know that

mutual funds exist. But once people are aware of mutual fund investment opportunities, the

number of people who decide to invest in mutual funds will increase to as many as one in five

people. The trick for converting a person with no knowledge of mutual funds to a new Mutual

Fund customer is to understand which of the potential investors are more likely to buy mutual

funds and to use the right arguments in the sales process that customers will accept as important

and relevant to their decision.

This Project gave me a great learning experience and at the same time it gave me enough scope

to implement my analytical ability. The analysis and advice presented in this Project Report is

based on market research on the study of Debt and Equity Funds in India. This Report will help

to know about the investors’ preferences in Mutual Fund means, Do they prefer any particular

Asset Management Company (AMC), Which type of Product they prefer, Which Option

(Growth or Dividend) they prefer or Which Investment Strategy they follow (Systematic

Investment Plan or One time Plan). This Project as a whole can be divided into two parts.

The first part gives an insight about Debt and Equity Funds and its various aspects, the major

mutual fund players in India, Objectives of the study, Research Methodology. One can have a

brief knowledge about Debt and Equity Fund and its basics through the Project.

The second part of the Project consists of data and its analysis collected through survey done on

100 people and some financial analysis done on the basis of NAV (Monthly Data). For the

collection of Primary data I made a questionnaire and surveyed of 100 people. I also took

interview of many People those who are the customers of various banks. I visited other AMCs to

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get some knowledge related to my topic. I studied about the products and strategies of other

AMCs to know why people prefer to invest in those AMCs. This Project covers the topic

“Comparative Study of Debt and Equity Funds in India”. The data collected has been well

organized and presented. I hope the research findings and conclusion will be of use.

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CONTENTS:-

Chapter - 1 INTRODUCTION 11-34

Chapter - 2 INDUSTRY PROFILE 36-42

Chapter - 3 OBJECTIVES AND SCOPE 44-46

Chapter - 4 RESEARCH METHODOLOGY 48-50

Chapter - 5 LITERATURE REVIEW 52-53

Chapter - 6 DATA ANALYSIS AND INTERPRETATION 55-83

Chapter - 7 FINDINGS AND SUGGESIONS 85-88

CONCLUSION 89

BIBLIOGRAPHY &ANNEXURE 90-93

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Chapter -1

Introduction

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Introduction:-

We have tried to analyze the performance of debt and equity funds through mutual funds. As

debt and equity fund is a wide area. Mutual fund has been considered as an effective tool to

measure the relationship of debt and equity funds. Equity and Debt funds are further divided into

two parts i.e. Dividend and Growth. The Growth fund includes re-investment of dividend, which

definitely shows high performance in comparison of other funds. This has been reflected in our

OLS Model also. Result R2 shows the percentage of total variation of the dependable variable

that can be explained by the independent variable X. to further analyze it, we have implemented

OLS Model in equity & debt fund and tried to find out cause and effect relationship between

Sensex and debt & equity funds, as these funds are further re-invested in the market through BSE

& NSE Sensex by mutual fund companies. Generally these funds are divided into two parts

Debt(less risk), Equity (pertaining high risk). As the performance of both the funds are reflected

through volatility in the market. Hence I have taken Sensex as a common parameter in the OLS

model (dependent variable) to further analyze the relationship between debt and equity funds.

I have downloaded the secondary daily data of NAV through website of www.hdfcfund.com.

This has been further converted as monthly average daily prices X1+X2+X3+…………+Xn.

Further I have calculated percentage growth through formula {(P1-P0)*100/P0}

Where P0=Initial Price i.e. first month average price and P1 indicates current monthly average

NAV.

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http://www.hdfcfund.com/

Mutual fund is a trust that pools the savings of a number of investors who share a common

financial goal. This pool of money is invested in accordance with a stated objective. The joint

ownership of the fund is thus “Mutual”, i.e. the fund belongs to all investors. The money thus

collected is then invested in capital market instruments such as shares, debentures and other

securities. The income earned through these investments and the capital appreciations realized

are shared by its unit holders in proportion the number of units owned by them. Thus a Mutual

Fund is the most suitable investment for the common man as it offers an opportunity to invest in

a diversified, professionally managed basket of securities at a relatively low cost. A Mutual Fund

is an investment tool that allows small investors access to a well-diversified portfolio of equities,

bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are

issued and can be redeemed as needed. The fund’s Net Asset value (NAV) is determined each

day.

Investments in securities are spread across a wide cross-section of industries and sectors and

thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the

same direction in the same proportion at the same time. Mutual fund issues units to the investors

in accordance with quantum of money invested by them. Investors of mutual funds are known as

unit holders.

When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets

of the fund in the same proportion as his contribution amount put up with the corpus (the total

amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit

holder.

Any change in the value of the investments made into capital market instruments (such as shares,

debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the

market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is

calculated by dividing the market value of scheme's assets by the total number of units issued to

the investors.

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http://www.appuonline.com/mf/knowledge/concept.html

CATEGORIES OF MUTUAL FUND:

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Mutual funds can be classified as follow :

Based on their structure:

Open-ended funds: Investors can buy and sell the units from the fund, at any point of

time.

Close-ended funds: These funds raise money from investors only once. Therefore,

after the offer period, fresh investments can’t be made into the fund. If the fund is listed

on a stocks exchange the units can be traded like stocks (E.g., Morgan Stanley Growth

Fund). Recently, most of the New Fund Offers of close-ended funds provided liquidity

window on a periodic basis such as monthly or weekly. Redemption of units can be made

during specified intervals. Therefore, such funds have relatively low liquidity.

Based on their investment objective:

Equity Funds

Equity funds are considered to be the more risky funds as compared to other fund types, but they also provide higher returns than other funds. It is advisable that an investor looking to invest in an equity fund should invest for long term i.e. for 3 years or more. There are different types of equity funds each falling into different risk bracket. In the order of decreasing risk level, there are following types of equity funds:

1. Aggressive Growth Funds : In Aggressive Growth Funds, fund manager

aspire for maximum capital appreciation and invest in less researched shares of speculative nature. Because of these speculative investments Aggressive Growth Funds become more volatile and thus, are prone to higher risk than other equity funds.

2. Growth Funds - Growth Funds also invest for capital appreciation (with time

horizon of 3 to 5 years) but they are different from Aggressive Growth Funds in the sense that they invest in companies that are expected to outperform the market in the future. Without entirely adopting speculative strategies, Growth Funds invest in those companies that are expected to post above average earnings in the future.

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3. Specialty Funds : Specialty funds have stated criteria for investment and their

portfolio comprises of only those companies that meet their criteria. Criteria for some specialty funds could be to invest/not to invest in particular regions/companies. Specialty funds are concentrated and thus, are comparatively riskier than diversified funds. These are following types of specialty funds:

a) Sector Funds: Equity funds that invest in a particular sector/industry of the market are known as Sector Funds. The exposure of these funds is limited to a particular sector (say Information Technology, Auto, Banking, Pharmaceuticals or Fast Moving Consumer Goods) which is why they are more risky than equity funds that invest in multiple sectors.

b) Foreign Securities Funds: Foreign Securities Equity Funds have the option to invest in one or more foreign companies. Foreign securities funds achieve international diversification and hence they are less risky than sector funds. However, foreign securities funds are exposed to foreign exchange rate risk and country risk.

c) Mid-Cap or Small-Cap Funds: Funds that invest in companies having lower market capitalization than large capitalization companies are called Mid-Cap or Small-Cap Funds. Market capitalization of Mid-Cap companies is less than that of big, blue chip companies (less than Rs. 2500 crores but more than Rs. 500 crores) and Small-Cap companies have market capitalization of less than Rs. 500 crores. Market Capitalization of a company can be calculated by multiplying the market price of the company's share by the total number of its outstanding shares in the market. The shares of Mid-Cap or Small-Cap Companies are not as liquid as of Large-Cap Companies which gives rise to volatility in share prices of these companies and consequently, investment gets risky.

1. Diversified Equity Funds - Except for a small portion of investment in liquid money market, diversified equity funds invest mainly in equities without any concentration on a particular sector(s). These funds are well diversified and reduce sector-specific or company-specific risk. However, like all other funds diversified equity funds too are exposed to equity market risk. One prominent type of diversified equity fund in India is Equity Linked Savings Schemes (ELSS). As per the mandate, a minimum of 90% of investments by ELSS should be in equities at all times. ELSS investors are eligible to claim deduction from taxable income (up to Rs 1 lakh) at the time of filing the income tax return. ELSS usually has a lock-in period and in case of any redemption by the

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investor before the expiry of the lock-in period makes him liable to pay income tax on such income(s) for which he may have received any tax exemption(s) in the past.

2. Equity Index Funds - Equity Index Funds have the objective to match the performance of a specific stock market index. The portfolio of these funds comprises of the same companies that form the index and is constituted in the same proportion as the index. Equity index funds that follow broad indices (like S&P CNX Nifty, Sensex) are less risky than equity index funds that follow narrow sectoral indices (like BSEBANKEX or CNX Bank Index etc). Narrow indices are less diversified and therefore, are more risky.

3. Value Funds - Value Funds invest in those companies that have sound fundamentals and whose share prices are currently under-valued. The portfolio of these funds comprises of shares that are trading at a low Price to Earning Ratio (Market Price per Share / Earning per Share) and a low Market to Book Value (Fundamental Value) Ratio. Value Funds may select companies from diversified sectors and are exposed to lower risk level as compared to growth funds or specialty funds. Value stocks are generally from cyclical industries (such as cement, steel, sugar etc.), which make them volatile in the short-term. Therefore, it is advisable to invest in Value funds with a long-term time horizon as risk in the long term, to a large extent, is reduced.

4. Equity Income and Debt Yield Funds : The objective of Equity Income or Dividend Yield Equity Funds is to generate high recurring income and steady capital appreciation for investors by investing in those companies which issue high dividends (such as Power or Utility companies whose share prices fluctuate comparatively lesser than other companies' share prices). Equity Income or Dividend Yield Equity Funds are generally exposed to the lowest risk level as compared to other equity funds.

DEBT FUNDS

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Funds that invest in medium to long-term debt instruments issued by private companies, banks, financial institutions, governments and other entities belonging to various sectors (like infrastructure companies etc.) are known as Debt / Income Funds. Debt funds are low risk profile funds that seek to generate fixed current income (and not capital appreciation) to investors. In order to ensure regular income to investors, debt (or income) funds distribute large fraction of their surplus to investors. Although debt securities are generally less risky than equities, they are subject to credit risk (risk of default) by the issuer at the time of interest or principal payment. To minimize the risk of default, debt funds usually invest in securities from issuers who are rated by credit rating agencies and are considered to be of "Investment Grade". Debt funds that target high returns are more risky. Based on different investment objectives, there can be following types of debt funds:

1) Diversified Debt Funds : Debt funds that invest in all securities issued by entities

belonging to all sectors of the market are known as diversified debt funds. The best feature of diversified debt funds is that investments are properly diversified into all sectors, which results in risk reduction.

2) High Yield Debt Funds: As we now understand that risk of default is present in all

debt funds, and therefore, debt funds generally try to minimize the risk of default by investing in securities issued by only those borrowers who are considered to be of "investment grade". But, High Yield Debt Funds adopt a different strategy and prefer securities issued by those issuers who are considered to be of "below investment grade". The motive behind adopting this sort of risky strategy is to earn higher interest returns from these issuers. These funds are more volatile and bear higher default risk, although they may earn at times higher returns for investors.

3) Assured Return Funds: Although it is not necessary that a fund will meet its

objectives or provide assured returns to investors, but there can be funds that come with a lock-in period and offer assurance of annual returns to investors during the lock-in period. Any shortfall in returns is suffered by the sponsors or the Asset Management Companies (AMCs). These funds are generally debt funds and provide investors with a low-risk investment opportunity. However, the security of investments depends upon the net worth of the guarantor (whose name is specified in advance on the offer document). To safeguard the interests of investors, SEBI permits only those funds to offer assured return schemes whose sponsors have adequate net-worth to guarantee returns in the future. In the past, UTI had offered assured return schemes (i.e. Monthly Income Plans of UTI) that assured specified returns to investors in the future. UTI was not able to fulfill its promises and faced large shortfalls in returns. Eventually, government had to intervene and took over UTI's payment obligations on itself. Currently, no AMC in India offers assured return schemes to investors, though possible.

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4) Fixed Term Plan Series: Fixed Term Plan Series usually are closed-end schemes

having short-term maturity period (of less than one year) that offer a series of plans and issue units to investors at regular intervals. Unlike closed-end funds, fixed term plans are not listed on the exchanges. Fixed term plan series usually invest in debt / income schemes and target short-term investors. The objective of fixed term plan schemes is to gratify investors by generating some expected returns in a short period.

INVESTMENT STRATEGIES

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1. Systematic Investment Plan: Under this a fixed sum is invested each month

on a fixed date of a month. Payment is made through post dated cheques or direct debit facilities. The investor gets fewer units when the NAV is high and more units when the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA).

2. Systematic Transfer Plan: Under this an investor invest in debt oriented fund

and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund.

3. Systematic Withdrawal Plan: If someone wishes to withdraw from a mutual

fund then he can withdraw a fixed amount each month.

ANALYSIS OF DEBT AND EQUITY FUND

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Debt Funds

1) They must be repaid or refinanced.2) Requires regular interest payments. Company must generate cash flow to pay.3) Collateral assets must usually be available.4) Debt providers are conservative. They cannot share any upside or profits. Therefore, they

want to eliminate all possible loss or downside risks.5) Interest payments are tax deductible.6) Debt has little or no impact on control of the company.7) Debt allows leverage of company profits.

Equity Funds

1) They can usually be kept permanently.2) No payment requirements. May receive dividends, but only out of retained earnings.3) No collateral required.4) Equity providers are aggressive. They can accept downside risks because they fully share

the upside as well.5) Dividend payments are not tax deductible.6) Equity requires shared control of the company and may impose restrictions.7) Shareholders share the company profits.

Importance of using Debt Funds:

1) Debt is not an ownership interest in the business. Creditors generally do not have voting power.

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2) The payment of interest on debt is considered a cost of doing business and is fully tax deductible.

Importance of using Equity Funds:

1) Unlike obligation of debt, your business will not have any contractual obligation to pay for equity dividend

2) Equity financing also allows your business to obtain funds without incurring debt, or without having to repay a specific amount of money at a particular time.

Equity financing also allows your business to obtain funds without incurring debt, or without having to repay a specific amount of money at a particular time. Recent deals by equity funds are much larger than in the past. And debt funds are now doing larger "club" deals. Both types of funds have more money under management than ever before. More cash is chasing deals, causing overlap where both types of funds vie over the same company.

Although these funds do not represent long-term threats to each other, secured lenders must recognize that equity and debt funds have marked different characteristics, goals and behaviors. The most fundamental difference in equity funds seeks to buy all of the equity of companies debt funds are not constrained to controlling equity investments. Highlighted below are other major differences between the both types of funds.

Whether investing in debt or equity, debt funds typically demand a much more rapid exit strategy than equity funds. Debt funds generally seek a quick flip of their investments. However, some debt fund investments are "loan to own" that is, they buy debt at a deep discount with an eye towards converting that debt to equity, then magnetizing that equity (through a recapitalization, refinancing, sale, merger or other disposition) in a short time period. This is a function of, among other things, the liquidity and leverage differences between the two types of funds. The time-hold differences directly affect the exit strategy, risk tolerance and desired rate of return of the two types of funds.

Thus, Investing money for short-term has generally been an issue. As it is the interest rates / returns are quite low. On top of this, there could be taxation issues, which will further reduce the effective returns. Equity funds may not be a prudent option for short-term. Therefore, we need to consider mainly the interest-based investment options. In the equity funds, higher the risk you take, the higher the returns you can get. Since there's a known cash flow associated with debt, the risk is less. But the returns are also less. When compared with equity funds, the risk for the latter may be more. This is because there's a steady cash flow associated with debt funds. In fact, the interest which the debt fund promises to pay (known as 'coupon' in financial parlance) is one of the fundamental attributes of a debt fund.

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However, debt fund shares a very fundamental relationship with interest rates. To understand this relationship and how that can be used in present day context to make money, you must understand the basics of debt.

The Relationship between Debt & Equity Funds

When we look at prospective investments, possibly the most important thing to look at is debt. Not just debt, but the firm's ability to carry the debt. This is central in any investment decision. The relationship between debt and equity is the formal means of understanding this carrying capacity and ultimately, the financial health of the firm.

Features

Formally, the relationship between debt and equity is a ratio that measures the amount of debt versus the amount of equity owned by shareholders. Simply put, it is a ratio between the amount owed to creditors of all kinds and the amount of capital owned by shareholders, or the amount of capital under the ownership of the firm. Even simpler, it is the amount owed versus what the firm actually has, including cash flow.

Function

For investors, the debt to equity ratio is about the financial health of the firm and the nature of its own investment policy. Taken in isolation, a firm that has high debt versus its capital possessions seems to be in trouble or poorly managed. Shareholders might worry that high debt might make it difficult or impossible for the firm to pay what it owes and satisfy shareholders in the event of dissolution.

Significance

Debt versus equity should not, however, be taken in isolation. Debt financing is cheaper than equity, or selling shares, and therefore, high debt might mean an aggressive strategy that will pay off in the end. This is especially true among firms with a high cash flow. If cash flow is high, then even a firm with much debt versus equity is not in trouble, but is expanding quickly and financing new projects with loans versus selling shares. On the other hand, high equity might mean the firm is sluggish, not using its equity to finance new products or expansion.

Effects

Investors who do not like surprises want to invest in firms with low debt to equity ratios. Low ratios here are generally conservative firms with low volatility. One mark of high debt is that earnings will likely be volatile and risk is higher. For investors, another ratio

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that can supplement debt to equity is income to interest. These two ratios taken together tell more of the story since cash flow can be used to control for high debt.

Benefits

The debt-to-equity ratio is a good way to determine the health of a firm and its general policies, but it must be taken in context. Capital-intensive firms like those in the automotive or petroleum industries almost always have high debt due to expensive equipment. The big issue here is general cash flow rather than the ratio. Debt means little if the firm is growing and earning at a healthy rate. Debt means everything if the cash flow cannot keep up with obligations or is receding relative to debt.

Why debt funds are attractive?

The recent stock market’s gyrations would have left a lot of investors dazed. At this juncture,

many would be looking at decent returns as well as safety of capital.

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The answer lies in fixed income instruments, particularly debt schemes of mutual funds, since

they provide higher post-tax returns than traditional debt instruments as well as a chance for

capital appreciation. Let us look at some of these options and why they seem so attractive at

present:

Simply put, interest rates have an inverse relationship with bond prices. If RBI cuts interest rates,

this will lead to bond prices rallying, giving the investor both, income flows from the bond

coupon, as well as capital gains.

This has already been happening over the last few months, where bond yields have fallen and

investors have been getting quite decent returns in bond funds, especially longer duration funds.

This is because bonds of longer maturity periods are more sensitive to interest rate changes than

shorter maturity bonds. This leads to higher capital gains due to greater increase in their market

prices when bond yields fall.

For example, let us take two bonds of Rs 100 each, one of three-year duration and another of 10-

year duration. The first bond yields 7.75 per cent and the latter returns 8 per cent. Now let us

suppose bond yields fell by 50 basis points.

The price of both bonds would go up, to neutralize the effect of the interest rate fall, since they

are currently giving higher interest than the market interest rate.

While the price of the three-year bond should rise to Rs 101.33, the price of the 10-year bond

would have risen to Rs 104.75.

Even if we are approaching a softer interest rate scenario, investors would do well o put their

money into longer duration bond and gilt funds or actively managed bond funds, where the fund

manager tries to generate superior bond returns by playing the yield curve.

Debt schemes of mutual funds also offer greater tax-efficiency. While investors have to pay

income tax at the rate of 33.9 per cent on their interest income from conventional investments

like post office schemes and bank fixed deposits, in case they are in the highest tax slab, mutual

fund investors get to pay much less.

In case the investor takes the dividend option, an individual or an HUF has to face deduction of

dividend distribution tax (DDT) from their fund's NAV at the rate of 14.16 per cent, while others

like corporate has to bear a DDT of 22.66 per cent, both of which are much lower than the

highest marginal tax rate and the corporate tax rate. The income in the hands of investors after

this dividend distribution tax is completely tax-free.

For those investors who do not want the risk of changing bond yields and prices, the preferred

investment avenue could be fixed maturity plans (FMP) of mutual funds.

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They are available in various durations, from 3 months to 3 years. At this time of the year, 14

month fixed maturity plans are very popular, since they provide high returns to the investor with

minimal taxes due to double indexation benefits. Here is how they work.

Suppose you invest Rs 1 lakh in a FMP of 14 months at an indicative yield of 9 per cent a year.

Your total returns would be Rs 10,500. Now suppose the cost inflation index for this and the next

financial year is 4 and 4.5 respectively.

This would enable you to get indexation benefits for gains equaling Rs 9,917. That is, only Rs

583 are deducted as tax. This too would get taxed at the rate of 20.6 per cent, since you would

pay long-term capital gains tax on your income from investments of more than a year.

Thus we see that debt schemes of mutual funds offer a viable investment option, providing both

regular income as well as chance of capital gains to investors.

5 Things to avoid while investing in Equity mutual funds:-

Choosing the best equity fund or ELSS for the purpose of investing in mutual funds is no-doubt very important but what are the other important considerations to be kept in mind while investing

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in them.

So, this is going to tell you about 5 things to avoid while investing in equity mutual funds.

5 things to avoid while investing in Equity funds:

1. Avoid Duplication

Before Investing in a good mutual fund, you must look at its top 10 stock holdings and also top 5 sector holdings...Why? To avoid duplication. The basic purpose behind investment through the medium of mutual funds is to diversify the investment portfolio. Diversification helps in de-risking of stock portfolio but having multiple funds in your portfolio with the same stocks defeats the purpose of diversification i.e., your investment portfolio becomes as good as an undiversified portfolio.

Therefore, while investing in equity funds, give a look at the underlying stocks. Let’s say you’ve all the three top / best performing equity funds in your portfolio. Further suppose that out of the top 10 stock holdings six (say, ICICI Bank, SBI, Reliance Industries, Infosys, HUL and HDFC) are common to all the three funds; it’ll be as good as investing in just one of the funds.

First ask yourself, why do we need to go for multiple funds? By investing in similar schemes, you don’t do much of a diversification in the real sense. The best way is to have two or at the most 3 top rated equity diversified funds (multi / large Cap) having different stock portfolio and / or 1-2 equity diversified (mid & small Cap), according to your risk profile (remember mid & small cap funds are riskier than multi / large-cap funds).

2. Avoid Laggards

Rather than chasing top-performers, it is more important to look for consistent good performers and avoid non-performers. In other words, avoiding laggards or weeding out consistent under-performers is more important than running after the best equity mutual funds.

First ask yourself: Is it really important to run after the best performing funds? Is it worth the time, effort and cost involved; or, is there any better way to make your mutual fund portfolio better & efficient?

As already explained in the earlier post, the best is always a relative term (there is no absolute best) and this relativity can make your performance look pale not because you’re not doing good but others are doing better than you.

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There are two implications:a) We should consider both relative as well as absolute performance.b) It is more important to avoid the laggards / worst performers than to choose the best performer.

You’ve nothing to worry about so long as your portfolio contains 4 & 5 rated funds. If a fund is rated 3 stars, then hold on and keep it on your watch list. No urgency to dump it immediately. If a fund is rated 1 star or 2 stars, it shows consistent poor performance. You must act immediately to weed it out.

3. Avoid Sectoral & Thematic Funds

Avoid sectoral and thematic funds because these are the riskiest equity funds. If you’re already invested in them or would like to invest in them, restrict your exposure to a maximum of 10%.

4. Avoid New Funds

First never invest in a NFO. Second, go for a diversified equity fund with a track record of 5 or more years and having 4 or 5 star rating. You might also consider other 5 star rated funds having track record of less than 5 years. But it is better to avoid any fund less than 3 year old.

5. Avoid Frequent Churning

Know that there is a cost attached to shuffling portfolio. You should have clear reasons for reshuffling the portfolio. Simply because the fund ratings have dropped from 5-star to 4-star or from 4-star to 3-star is not a good enough reason. In other words, so long as your portfolio doesn’t hold any 1-2 star rated fund you’ve no reason to worry and there is no need to reshuffle funds. As already discussed, chasing short term top performance is a mirage.

What is Risk?

Any rational investor, before investing his or her investible wealth in the stock, analyses the risk associated with the particular stock. The actual return he receives from a stock may vary from his expected return and the risk is expressed in terms of variability of return. The down side risk may

27

be cause by several factors, either common to all stocks or specific to a particular stock. Investor in general would like to analyze the risk factors and a thorough knowledge of the risk helps him to plan his portfolio in such a manner so as to minimize the risk associated with the investment.

The dictionary meaning of risk is the possibility of loss or injury, the degree the degree or probability of such loss. In risk, the probable outcomes of all the possible events are listed. Once the events are listed subjectively, the derived probabilities can be assigned to the entire possible events. For example- the investor can analyze and find out the possible range of returns from his investment. He can assign some subjective probability to his returns, such as 50% of the time there is a likelihood of getting Rs. 2 per share as dividend and 50% of the time the possible dividend may be Rs. 3 per share. Often risk is interchangeably used with uncertainty. In uncertainty, the possible events and probabilities of their occurrence are not known. Hence, risk and uncertainty are different from each other. Risks consist of two components, the systematic risk and unsystematic risk. The Systematic Risk is caused by factors external to the particular company and uncontrollable by the company. The systematic risk affects the market as a whole. In the case of unsystematic risk the factors are specific, unique and related to the particular industry or company.

What is Return?

The return from the stock includes both current income and capital gain caused by the appreciation of the price. The income and capital gain are expressed as a percentage of money invested in the beginning. The historical returns or exposit returns are derived from the cash flow received as well as the price changes that occur during the period of holding the stock or any asset. The income flow is the dividend he receives during the holding period.

Risk V/S. Return

28

Different kind of risk associated with Debt Fund

Debt Funds hold major investments in bonds of different categories.

Bond funds invest in bonds and like any investment are affected by some risks. The risks

29

associated with bonds are:

Interest-rate risk

Unlike stock market where an upward movement of market leads to upward movement in stock prices, it is a fall in the market yield that pushes up the prices of debt securities. This happens because there exists an inverse relationship between the yield and the price of a bond. So, if there is an upward movement of interest rates after one has invested in a bond fund, the prices of bonds will go down leading to a corresponding fall in the NAVs of the bond funds. Let us take an example:

Suppose a person buys a bond for Rs. 100 with a coupon rate of 10 percent. In other terms the person should get Rs. 110 at the end of the year. If the RBI announces a hike in the bank rate and the market yield for the duration of the bond increased, say to 11 percent, the prices of the bond will fall around to Rs. 90.91 in order to adjust to the market yield.

An investor stands to benefit in the opposite scenario, when the interest rates are cut as then the prices go up leading to better returns from the fund. If the interest rate in the above example falls to 9 percent, a person still gets Rs. 10 in interest but in order to align the amount received to the prevailing market yield, the price of the bond adjusts to Rs. 111.11. In this case, the investor is better off by selling it at Rs. 111.11 than holding it to its maturity, as then he will only get Rs. 110.

This risk is also dependent upon the maturity and duration of the bond and generally, the longer a fund's duration or average maturity, the higher its interest-rate risk, or the more sensitive the NAV of the fund will be to changes in interest rates. One can reduce the interest rate risk by choosing a bond fund with a shorter duration or average maturity.

Credit risk

Just like shares where the performance of the company has some bearing on the stock prices, credibility of the issuer is of importance in debt instruments. The risk of the issuer not being able to make payments on his liabilities (debt instrument) is termed as default risk or credit risk. This is of special concern to the investor if the fund is investing into junk bonds or lower quality

30

bonds. Bond funds offer professional management and a range of quality ratings to help lower this risk and so investors stand to benefit by the expertise of fund to pick good papers only.

Delay Risk

Cash flows are estimated on the basis of the pattern of income distribution. For example, a bond can pay interest half yearly, on fixed dates and so if there is any delay in receiving payments from the issuer, there is bound to be a mismatch between the cash flows. This can be termed as the delay risk. Mutual funds too can miss out on the interest due on an investment and have to show it as accrued but not received. This also affects the time value of the money due. A continuation of this trend may lead to a re-rating of the paper and add to the non-performing assets of the fund.

Balancing Risk vs. Reward

As with any investment in any category, there is always a trade-off between the risks taken and returns generated. The greater the risk of a bond fund (dependent on the quality and duration of papers), the higher is the potential reward, or return. With a bond fund, the risk that prices may fluctuate and the value of your investment may increase or decrease is not eliminated and so one must choose funds based on his risk tolerance.

Debt funds invest in instruments that carry a fixed rate of interest or are guaranteed, in many cases, by the issuer. As a result, debt funds are often perceived by the investor as being completely risk-free. However, the reality is different. Debt funds may be less risky than equity funds, but they certainly aren't risk-free. Debt fund NAVs can change with interest rates, changes in the portfolio's ratings or tenure.

Risk Associated With Investment in Equity Funds We are often told that equity investments are subject to market risk. What is risk? It means earning less than what is expected from a given investment or loosing part which is invested. When it comes to investment, we only talk about returns. We say “The higher the risk the higher the return”. How easy it would be then to assess a mutual fund if they published, along with their returns performance, the risk involved in earning such returns. For example- a fund

31

gave 25% return by risking losing your capital to the extent of 5%, and another gave 50% return by taking the risk of losing 100% of your capital. In the absence of risk figures, you would rate the fund that gave 60% return as better than the one that gave 25% return. However, within the risk parameter, you would prefer a fund that risks 5% of your capital to one that risks 100% of it.

‘No risk no return’ is a phrase that truly explains the stock markets. Be it equity or derivative instruments, various types of risks can be associated with them. The motive of investors is to minimize the risk and maximize the returns.

Economy related risk

Stock market is highly influenced by economic changes or macro factors. For instance, factors such as economic performance of a particular country, interest rate movements, and international developments play a great role in deciding the movements in securities market. Any unforeseen changes in these factors can influence the securities market positively as well as negatively. Your investment is derivatives and equities will also be influenced by these macro changes.

Risks at industry or company level

Risks related to the condition of various industries or industry cycles also affect your return on investment in equity, future, options, and other securities. For instance, if the industry you have invested in faces a setback due to any reason; you have the risk of losing upon all or a part of your investment. Any changes in government regulations related to any particular industry affects the companies under that industry. This in turn will have an effect on your investment in these companies. if the company you invested in faces a downfall, your investment is at a risk of being wasted.

Other risks

The risk related to any derivative you have invested in is related to the base securities that underline your investment. If your base securities are exposed to high risks, your investment will be categorized as a high risk investment. Change in value of derivatives, risk of failure to perform on the part of counterparty, and if any of the parties become insolvent explain market risks, credit risks, and legal risks associated with derivative instruments. Operational risk is also one of the major risks that can be associated with market of derivative instruments.

Tools & Techniques that is used in the study:

CORRELATION CO - EFFICIENT ANALYSIS

32

A measure of the strength of linear association between two variables. Correlation will always between -1.0 and +1.0. If the correlation is positive, we have a positive relationship. If it is negative, the relationship is negative.

Use the Correlation transformer to determine the extent to which changes in the value of an attribute (such as length of employment) are associated with changes in another attribute (such as salary). The data for a correlation analysis consists of two input columns. Each column contains values for one of the attributes of interest. The Correlation transformer can calculate various measures of association between the two input columns. You can select more than one statistic to calculate for a given pair of input columns.

The data in the input columns also can be treated as a sample obtained from a larger population, and the Correlation transformer can be used to test whether the attributes are correlated in the population. In this context, the null hypothesis asserts that the two attributes are not correlated, and the alternative hypothesis asserts that the attributes are correlated.

The Correlation transformer calculates any of the following correlation-related statistics on one

or more pairs of columns.

N∑XY – (∑X) (∑Y)

r =

√ [NΣX2 - (ΣX) 2] [NΣY2 - (ΣY) 2])

N= Number of values or elements

X = First Score

Y = Second Score

ΣXY = Sum of the product of first and Second Scores

ΣX = Sum of First Scores

ΣY = Sum of Second Scores

ΣX2 = Sum of square First Scores

ΣY2 = Sum of square Second Scores

As I have also applied OLS Model in our study as the data is a time series data.

Linear regression attempts to model the relationship between two variables by fitting a linear equation to observed data. One variable is considered to be an explanatory variable, and the other is considered to be a dependent variable. For example, a modeler might want to relate the weights of individuals to their heights using a linear regression model.

33

Before attempting to fit a linear model to observed data, a modeler should first determine whether or not there is a relationship between the variables of interest. This does not necessarily imply that one variable causes the other (for example, higher SAT scores do not cause higher college grades), but that there is some significant association between the two variables. A scatter plot can be a helpful tool in determining the strength of the relationship between two variables. If there appears to be no association between the proposed explanatory and dependent variables (i.e., the scatter plot does not indicate any increasing or decreasing trends), then fitting a linear regression model to the data probably will not provide a useful model. A valuable numerical measure of association between two variables is the correlation coefficient, which is a value between -1 and 1 indicating the strength of the association of the observed data for the two variables.

A linear regression line has an equation of the form Y=β0+ β1X, where X is the independent variable and Y is the dependent variable. The slope of the line is β1, and β0 is the intercept (the value of y when x = 0).

34

Chapter – 2

Industry Profile

Major Mutual Fund Player in market

SBI MUTUAL FUND :-

35

SBI Funds Management Pvt. Ltd. is one of the leading fund houses in the country with an investor base of over 4.6 million and over 20 years of rich experience in fund management consistently delivering value to its investors. SBI Funds Management Pvt. Ltd. is a joint venture between 'The State Bank of India' one of India's largest banking enterprises, and Société Générale Asset Management (France), one of the world's leading fund management companies that manages over US$ 500 Billion worldwide. Today the fund house manages over Rs 28500 crores of assets and has a diverse profile of investors actively parking their investments across 36 active schemes. In 20 years of operation, the fund has launched 38 schemes and successfully redeemed 15 of them, and in the process, has rewarded our investors with consistent returns. Schemes of the Mutual Fund have time after time outperformed benchmark indices, honored us with 15 awards of performance and have emerged as the preferred investment for millions of investors. The trust reposed on us by over 4.6 million investors is a genuine tribute to our expertise in fund management. SBI Funds Management Pvt. Ltd. serves its vast family of investors through a network of over 130 points of acceptance, 28 Investor Service Centers, 46 Investor Service Desks and 56 District Organizers.SBI Mutual is the first bank-sponsored fund to launch an offshore fund – Resurgent India Opportunities Fund.

Growth through innovation and stable investment policies is the SBI MF credo.

PRODUCTS OF SBI MUTUAL FUND

Equity schemes

The investments of these schemes will predominantly be in the stock markets and endeavor will be to provide investors the opportunity to benefit from the higher returns which stock markets can provide. However they are also exposed to the volatility and attendant risks of stock markets and hence should be chosen only by such investors who have high risk taking capacities and are willing to think long term. Equity Funds include diversified Equity Funds, Sectoral Funds and Index Funds. Diversified Equity Funds invest in various stocks across different sectors while sectoral funds which are specialized Equity Funds restrict their investments only to shares of a particular sector and hence, are riskier than Diversified Equity Funds. Index Funds invest passively only in the stocks of a particular index and the performance of such funds move with the movements of the index.

Magnum COMMA Fund Magnum Equity Fund Magnum Global Fund Magnum Index Fund Magnum Midcap Fund Magnum Multicap Fund Magnum Multiplier plus 1993 Magnum Sectoral Funds Umbrella

36

MSFU- Emerging Business Fund MSFU- IT Fund MSFU- Pharma Fund MSFU- Contra Fund MSFU- FMCG Fund SBI Arbitrage Opportunities Fund SBI Blue chip Fund SBI Infrastructure Fund - Series I SBI Magnum Taxgain Scheme 1993 SBI ONE India Fund SBI TAX ADVANTAGE FUND - SERIES I

Debt schemes

Debt Funds invest only in debt instruments such as Corporate Bonds, Government Securities and Money Market instruments either completely avoiding any investments in the stock markets as in Income Funds or Gilt Funds or having a small exposure to equities as in Monthly Income Plans or Children's Plan. Hence they are safer than equity funds. At the same time the expected returns from debt funds would be lower. Such investments are advisable for the risk-averse investor and as a part of the investment portfolio for other investors.

Magnum Children’s benefit Plan Magnum Gilt Fund Magnum Income Fund Magnum Insta Cash Fund Magnum Income Fund- Floating Rate Plan Magnum Income Plus Fund Magnum Insta Cash Fund -Liquid Floater Plan Magnum Monthly Income Plan Magnum Monthly Income Plan- Floater Magnum NRI Investment Fund SBI Premier Liquid Fund

Balanced SchemesMagnum Balanced Fund invests in a mix of equity and debt investments. Hence they are less risky than equity funds, but at the same time provide commensurately lower returns. They

37

provide a good investment opportunity to investors who do not wish to be completely exposed to equity markets, but is looking for higher returns than those provided by debt funds.

Magnum Balanced Fund

ICICI Mutual Fund

ICICI Prudential Asset Management Company Ltd. is a joint venture between ICICI Bank, India’s second largest commercial bank & a well-known and trusted name in the financial

38

services in India, & Prudential Plc, one of the United Kingdom’s largest players in the financial services sectors.

In a span of just over 12 years, the company has forged a position of preeminence as one of the largest Asset Management Company’s in the country, contributing significantly towards the growth of the Indian mutual fund industry.

Our Average Assets under Management (AAUM) as on Dec 2010 month-end in Mutual Fund Schemes stood at Rs. 65876.5 Crores. This is in addition to our Portfolio Management Services, inclusive of EPFO*, and International Advisory Mandates for clients across international markets in asset classes like Debt, Equity and Real Estate with primary focus on risk adjusted returns.

As an Asset Management Company, we have over 15 years of experience and are currently managing a comprehensive range of schemes of more than 46 Mutual funds and a wide range of PMS Products for our investors, spread across the country. We service this investor base with our own branch network of over 160 branches and a distribution reach of over 42,000 channel partners.

Products of ICICI Mutual Fund

Equity Scheme

ICICI Prudential Focused Bluechip Equity Fund ICICI Prudential Dynamic Plan ICICI Prudential Infrastructure Fund ICICI Prudential Discovery Fund ICICI Prudential Tax Plan ICICI Prudential Power

ICICI Prudential Technology Fund ICICI Prudential Index Fund ICICI Prudential Nifty Junior Index Fund ICICI Prudential Growth Plan ICICI Prudential Emerging Star Fund ICICI Prudential Services Industries Fund ICICI Prudential Equity Opportunities Fund ICICI Prudential E & D - Income Optimiser

ICICI Prudential E & D - Wealth Optimiser ICICI Prudential Indo Asia Fund ICICI Prudential FMCG Fund ICICI Prudential Banking and Financial Fund ICICI Prudential Target Returns Fund

39

Debt Schemes

ICICI Prudential Liquid Plan ICICI Prudential Flexible Income Plan ICICI Prudential Ultra Short Term Plan ICICI Prudential Floating Rate Plan ICICI Prudential Short Term Plan

ICICI Prudential Income Plan ICICI Prudential Gilt Fund-Investment Plan-PF ICICI Prudential Gilt Fund-Treasury Plan-PF ICICI Prudential MIP 25 ICICI Prudential Long Term Plan ICICI Prudential Gilt-Treasury ICICI Prudential Gilt-Investment

ICICI Prudential Long Term Floating Rate Plan ICICI Prudential Monthly Income Plan ICICI Prudential Income Opportunities Fund ICICI Prudential Medium Term Plan ICICI Prudential Banking & PSU Debt Fund ICICI Prudential Regular Savings Fund

HDFC Mutual Fund

HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset Management Company for the HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000.

40

The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai - 400 020.

In terms of the Investment Management Agreement, the Trustee has appointed the HDFC Asset Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC is Rs. 25.161 crore. The AMC is managing 28 open-ended schemes of the Mutual Fund viz. HDFC Growth Fund, HDFC Equity Fund, HDFC Top 200 Fund, HDFC Capital Builder Fund, HDFC Core & Satellite Fund, HDFC Premier Multi-Cap Fund, HDFC Index Fund, HDFC Long Term Advantage Fund, HDFC TaxSaver, HDFC Arbitrage Fund, HDFC Mid-Cap Opportunities Fund, HDFC Balanced Fund, HDFC Prudence Fund, HDFC Children’s Gift Fund, HDFC Gold Exchange Traded Fund, HDFC MF Monthly Income Plan, HDFC Multiple Yield Fund, HDFC Multiple Yield Fund- Plan 2005, HDFC Income Fund, HDFC High Interest Fund, HDFC Short Term Plan, HDFC Short Term Opportunities Fund, HDFC Medium Term Opportunities Fund, HDFC Gilt Fund and HDFC Floating Rate Income Fund , HDFC Liquid Fund, HDFC Cash Management Fund and HDFC Quarterly Interval Fund.

The AMC is also managing 7 closed ended Schemes of the HDFC Mutual Fund viz. HDFC Long Term Equity Fund, HDFC Infrastructure Fund, HDFC Fixed Maturity Plans - Series XI, HDFC Fixed Maturity Plans - Series XII, HDFC Fixed Maturity Plans - Series XIV, HDFC Fixed Maturity Plans - Series XV and HDFC Fixed Maturity Plans - Series XVII.

The AMC is also providing portfolio management / advisory services and such activities are not in conflict with the activities of the Mutual Fund. The AMC has renewed its registration from SEBI vide Registration No. - PM / INP000000506 dated December 21, 2009 to act as a Portfolio Manager under the SEBI (Portfolio Managers) Regulations, 1993. The Certificate of Registration is valid from January 1, 2010 to December 31, 2012.

Products of HDFC Mutual Fund

Equity Scheme

HDFC Debt Fund for Cancer Cure HDFC Short Term Opportunities Fund

41

HDFC Gilt Fund - Long Term Plan HDFC High Interest Fund HDFC MF Monthly Income Plan - Long Term Plan HDFC Floating Rate Income Fund - Short Term Plan HDFC Short Term Plan HDFC Multiple Yield Fund HDFC Medium Term Opportunities Fund HDFC Floating Rate Income Fund - Long Term Plan HDFC High Interest Fund - Short Term Plan HDFC Multiple Yield Fund - Plan 2005 HDFC Cash Management Fund-Treasury Advantage Plan HDFC Gilt Fund - Short Term Plan HDFC Income Fund HDFC MF Monthly Income Plan - Short Term Plan

Debt Schemes

HDFC Mid-Cap Opportunities Fund HDFC Prudence Fund HDFC Index Fund - Nifty Plan HDFC Capital Builder Fund HDFC Infrastructure Fund HDFC Long Term Advantage Fund (ELSS) HDFC Index Fund - Sensex Plus Plan HDFC Core and Satellite Fund HDFC Growth Fund HDFC TaxSaver (ELSS) HDFC Arbitrage Fund HDFC Premier Multi-Cap Fund HDFC Equity Fund HDFC Long Term Equity Fund HDFC Balanced Fund HDFC Index Fund - Sensex Plan HDFC Top 200 Fund

42

Chapter - 3

Objectives, Scope and

Hypothesis

Objective of the study:-

To find out the relationship between debt and equity funds.

How risk affects the performance of the funds.

Do the risk and return affects the investment decision of investors.

43

Scope of the study

A big boom has been witnessed in Mutual Fund Industry in recent times. A large number of new players have entered the market and trying to gain market share in this rapidly improving market.

44

The study will help to know the preferences of the customers, which company, portfolio, mode of investment, and option for getting return and so on they prefer.

This study may help the company to make further planning and strategy.

This study will help the customer to know about the various aspects of debt and equity funds.

Research Hypothesis:-

1. H0 : Change in the return of one fund affects the change in the return of other fund H1: Changes are not related

45

2. H0 : Risk and return affects the investment decision of investors

H1: Risk and return do not affect the investors’ decision

46

Chapter – 4

Research Methodology

RESEARCH METHODOLOGY

The research in its nature will be of descriptive and analytical type. This report is based on primary as well secondary data. One of the most important uses of research methodology is that it helps in identifying the problem, collecting, analyzing the required information data and providing an alternative solution to the problem .It also helps in collecting the vital information

47

that is required by the top management to assist them for the better decision making both day to day decision and critical ones.

Sampling:-

A sample is a finite part of a statistical population whose properties are studied to gain information about the whole. When dealing with people, it can be defined as a set of respondents (people) selected from a larger population for the purpose of a survey.

A population is a group of individual persons, objects, or items from which samples are taken for measurement for example a population of presidents or professors, books or students.

Objective of sampling method:

The prime objective of the sample survey is to obtain accurate and reliable information about of the universe with minimization of cost, time, and energy.

BASIS OF SAMPLING

Different types of sampling techniques are used for drawing a sample plan. The methods of sampling are classified into two types:

1. Probability sampling and2. Non-probability sampling

Both are derived below

1. Probability sampling:

It provides a scientific technique of drawing samples from the universe. In such a case each unit has the some defined pre-assigned probability of being chosen in the sample. Different types of probability sampling techniques are:

Random sampling Systematic sampling Stratified sampling Cluster sampling Multi-stage sampling and Area sampling

48

2. Non-probability sampling:

Non-probability sampling or judgment sampling is based on the personal judgment. Under this method a desired number of sample units are selected deliberately or purposely depending upon the subject of the enquiry so that only the important items representing the true characteristic of population are included in the sample. The methods of non-probability sampling are

Purposive sampling Quota sampling and Convenience sampling.

But the sampling technique which I am going to use in this study will be Random Sampling because the samples (the customer of different banks) will be randomly chosen for the questionnaire.

Sample Size:-The sample size will be 100 people of different banks for the purpose of Primary data. Some secondary financial data has also been used.

Limitation:-

Some of the persons were not so responsive.

Possibility of error in data collection because many of the investors may have not given actual answers of the questionnaire.

49

Sample size is limited to 100 visitors of different banks out of these only 55 had invested in Mutual Fund. The sample size may not adequately represent the whole market.

Some respondents were reluctant to divulge personal information which can affect the validity of all responses.

The research is confined to a certain part of Greater Noida.

50

Chapter –5

Literature Review

Literature Review:

51

Mutual fund is a mechanism for pooling the resources by issuing units to the investors and

investing funds in securities in accordance with objectives as disclosed in offer document.

Investments in securities are spread across a wide cross-section of industries and sectors and thus

the risk is reduced. Diversification reduces the risk because all stocks may not move in the same

direction in the same proportion at the same time. The aim of Equity Funds is to provide capital

appreciation over the medium to long- term. Such schemes normally invest a major part of their

corpus in equities. Such funds have comparatively high risks. These schemes provide different

options to the investors like dividend option, capital appreciation, etc. and the investors may

choose an option depending on their preferences. The investors must indicate the option in the

application form. The mutual funds also allow the investors to change the options at a later date.

Growth schemes are good for investors having a long-term outlook seeking appreciation over a

period of time. Equity investing can provide you with a lot of potential as an investor. This

potential has enticed many investors to get involved exclusively in the equity market. Here are a

few things to consider about whether you should deal only with equities. The aim of Debt Funds

is to provide regular and steady income to investors. Such schemes generally invest in fixed

income securities such as bonds, corporate debentures, Government securities and money market

instruments. Such funds are less risky compared to equity schemes. These funds are not affected

because of fluctuations in equity markets. However, opportunities of capital appreciation are also

limited in such funds. The NAVs of such funds are affected because of change in interest rates in

the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run

and vice versa. However, long term investors may not bother about these fluctuations. For

investors in debt mutual funds, these are interesting times. They need to realize that their returns

will be adversely impacted if rates go up. No wonder, experts are quite clear in their view - avoid

medium and long-term funds. Also, gilt funds are a strict no-no. This is because they are the first

to be impacted in case of a rate rise. While there are various options for investors, they need to

select the category that suits their risk-taking ability and time horizon. Debt funds offer you

benefits, which pure debt investments (like bonds and deposits) don't. If there were to be a

further decline in interest rates, and you have directly invested in debt instruments, it would not

mean much to you. You would hardly trade the securities you hold since all you would want to

collect is the promised interest at the end of the term. But a debt fund can post a better return by

marking the bonds in its portfolio to their rising market value, and by actively trading them.

52

The era of tax concessions is ending. (Too bad, if you didn't notice that). With lower interest

rates already acting as a dampener, small saving schemes appear to be at a disadvantage

compared to debt funds. If you raise your eyes a little and look at the horizon, you will see that

the further the small saving plans are deprived of tax sops, the more unattractive their returns

will become compared to debt funds.

Unlike the case of direct investments in bonds, higher returns in debt funds need not necessarily

mean higher risks. Several debt funds have achieved great returns from a steady income stream

and aggressive duration management (that is managing bonds' tenure in the portfolio), without

their risk going up. In short, exceptional returns in debt funds need not mean higher risks. In pure

debt instruments, higher return is certainly the result of the issuer taking higher risks.

Unlike retail investors, debt fund managers do not rely only on the rating of credit rating

agencies while evaluating bonds. The market has a way of downgrading a bond even before the

bond is actually downgraded by a rating agency. To give an example, last year, for months on

end, debt fund managers were already acting as if the bond of a top rated financial institution had

already been downgraded, when it had not. The bond was later downgraded, proving their fears

right. If you are directly investing in a bond, it is impossible to adopt such a cautious approach.

In any case, it would not mean much since you would keep the bond until maturity.

53

Chapter – 6

Data Analysis &

Interpretation

54

Part-I

Financial Analysis

We have tried to analyze the performance of debt and equity funds through mutual funds. As debt and equity fund is a wide area. Mutual fund has been considered as an effective tool to measure the relationship of debt and equity funds. Equity and Debt funds are further divided into two parts i.e. Dividend and Growth. The Growth fund includes re-investment of dividend, which definitely shows high performance in comparison of other funds. This has been reflected in our OLS Model also. Result R2 shows the percentage of total variation of the dependable variable that can be explained by the independent variable X. to further analyze it, we have implemented OLS Model in equity & debt fund and tried to find out cause and effect relationship between Sensex and debt & equity funds, as these funds are further re-invested in the market through BSE & NSE Sensex by mutual fund companies. Generally these funds are divided into two parts Debt(less risk), Equity(pertaining high risk). As the performance of both the funds are reflected through volatility in the market. Hence I have taken Sensex as a common parameter in the OLS model (dependent variable) to further analyze the relationship between debt and equity funds.

I have downloaded the secondary daily data of NAV through website of www.hdfcfund.com. This has been further converted as monthly average daily prices X1+X2+X3+…………+Xn. Further I have calculated percentage growth through formula {(P1-P0)*100/P0}

Where P0=Initial Price i.e. first month average price and P1 indicates current monthly average NAV.

Here the data for debt fund is taken from one of the debt fund scheme of HDFC Debt Mutual Fund i.e. HDFC Debt Income Fund Scheme and the data for equity fund is also taken from one of the HDFC Equity Mutual Fund i.e. HDFC Equity Balanced Fund Scheme.

55

http://www.hdfcfund.com/

Table 1.0 Showing Monthly Average NAV of Debt Fund (Dividend Option)

MonthsYears

2004 2005 2006 2007 2008 2009 2010January 10.74333 10.26579 10.1635 10.19 10.61043 11.06968 10.87193February 10.69792 10.3235 10.13632 10.1637 10.67571 10.83526 10.83656March 10.7425 10.33455 10.06364 10.1062 10.56093 10.75793 10.84486April 10.76684 10.233 10.11647 10.139 10.2283 11.05366 10.86489May 10.74524 10.25455 10.15727 10.1676 10.33944 11.09547 11.00458June 10.61909 10.30773 10.14773 10.1995 10.25909 11.02666 10.9966July 10.43773 10.22 10.13476 10.3457 10.17493 11.43098 10.89395August 10.32818 10.2733 10.20909 10.3914 10.20135 10.90033 10.89719September 10.38095 10.28524 10.27952 10.4035 10.2496 10.91638 10.95141October 10.2611 10.216 10.23684 10.4046 10.0895 10.82566 10.82114November 10.21368 10.252 10.29136 10.4871 10.24143 10.96715 10.87403December 10.29261 10.23636 10.312 10.5653 11.16294 10.97665 10.90026

January

February

March Ap

ril May

June

July

August

September

October

November

December

9

9.5

10

10.5

11

11.5

12

2004200520062007200820092010

Graph-1.0Table 1.1 Showing Monthly Averages NAV of Debt Fund (Growth Option)

56

MonthsYears


January

February

March Ap

ril May

June July

August

September

October

November

-1

1

3

5

7

9

11

13

15

17

19

21

23

25

2004200520062007200820092010

Graph-1.1

Table-1.2 Showing Monthly Average NAV of Equity Fund (Dividend Option)

57

MonthsYears


January

February

March Ap

ril May

June July

August

September

October

0

5

10

15

20

25

2004200520062007200820092010

Graph-1.2

Table-1.3 Showing Monthly Average NAV of Equity Fund (Growth Option)

58

MonthsYears


January

February

March Ap

ril May

June July

August

September

October

November

December

0

10

20

30

40

50

60

2004200520062007200820092010

Graph-1.3

Table-1.4 Showing % growth in the Debt Fund (Dividend Option)

59

MonthsYears

2004 2005 2006 2007 2008 2009 2010

January -4.44499 -5.39712 -5.15045 -1.237053.03769

91.19702

2

February -0.42268 -3.90782 -5.65011 -5.39544 -0.629410.85569

40.86779

4

March -0.00773 -3.80497 -6.32662 -5.93056 -1.69780.13589

80.94505

1

April0.21883

3 -4.7502 -5.83488 -5.62516 -4.793952.88858

31.13149

3

May0.01777

8 -4.54961 -5.45511 -5.35877 -3.759453.27775

52.43174

1

June -1.15644 -4.05461 -5.5439 -5.06184 -4.507352.63726

42.35746

3

July -2.84456 -4.87121 -5.66463 -3.70109 -5.290726.40071

61.40198

6

August -3.86426 -4.37509 -4.97276 -3.27617 -5.04481.46137

21.43214

4September -3.37307 -4.26395 -4.31719 -3.16317 -4.59569

1.610767 1.93683

October -4.48865 -4.90844 -4.71446 -3.1534 -6.085920.76633

60.72426

3

November -4.93004 -4.57335 -4.20698 -2.38464 -4.671742.08333

91.21656

9

December -4.19535 -4.71893 -4.01486 -1.657493.90577

22.17176

6 1.46072

60

January

February

March Ap

ril May

June Jul

yAugust

September

October

November

December

-8

-6

-4

-2

0

2

4

6

8

2004200520062007200820092010

Graph-1.4

Table-1.5 Showing % growth in the Debt Fund (Growth Option)

MonthYear

2004 2005 2006 2007 2008 2009 2010

January -

1.399343.93230

3 7.0274614.1908

327.7667

436.4870

1

February-

0.44032-

0.455624.14218

26.78318

816.7866

831.1759

8 36.0424

March0.34424

8 0.188363.85922

76.15643

317.5032

928.3970

236.4339

8

April-

0.440320.75094

1 3.111365.85752

916.7898

827.8869

637.8390

2

May0.34424

81.10261

83.67938

56.22047

915.0715

933.0992

239.6114

3

June1.47940

11.19285

94.08947

26.51477

116.3217

733.6028

839.8063

2

July1.27214

81.40248

23.97303

77.07901

715.4178

833.0561

240.3858

8

August0.26707

22.17103

5 3.852319.61037

514.4709

631.3275

840.4275

7Septembe - 2.41312 4.61061 10.0981 14.7683 33.3122 41.3468

61

r 0.32971 9 6 5 3 4 9

October-

1.39813 2.952595.51142

410.4955

615.4948

733.5816

841.6396

4

November-

0.673643.34295

16.06375

812.0719

914.7859

433.7928

442.3317

9

December-

0.934183.50812

66.62806

812.9681

916.5144

835.5415

642.8104

1

January

February

March Ap

ril May

June

July

August

September

October

November

December

-10

0

10

20

30

40

50

2004200520062007200820092010

Graph-1.5

Table-1.6 Showing % growth in the Equity Fund (Dividend Option)

MonthYear

2004 2005 2006 2007 2008 2009 2010

January 12.1933

5 4.6505415.0560

925.9940

4-

18.862227.0529

2

February -2.491616.4099

17.24534

711.0798

2 19.2054-

20.969825.4094

4

March-

0.419757.94902

1 13.25042.15295

79.07338

7-

31.514817.9208

4

62

April0.13324

1-

9.5173819.3327

9 7.0118611.3897

5-

21.231219.3596

7

May-

6.75262-

8.3537816.5517

211.5472

313.5511

4 -10.108 18.4147

June-

11.2024-

6.560693.55325

113.0001

75.93673

6 0.2755523.1223

6

July-

7.70854-

0.460616.66868

223.1175

70.63239

31.39582

337.1130

8

August-

5.082445.75771

613.6731

715.1124

57.82226

55.01141

340.1211

5September 0.35382

8.377836

19.21138

19.53945

6.080052

10.55636

36.04287

October3.26838

17.06853

224.0148

728.0570

1-

12.213915.5204

240.9070

6

November7.65300

6-

2.0146829.2114

134.4078

3-

11.583117.8666

941.2465

9

December 12.450714.0210

128.1000

2 39.1969-

19.7511 22.20938.7487

5

January

February

March Ap

ril May

June July

August

September

October

November

December

-40

-30

-20

-10

0

10

20

30

40

50

2004200520062007200820092010

Graph-1.6

63

Table-1.7 Showing % growth in the Equity Fund (Growth Option)

MonthYear

2004 2005 2006 2007 2008 2009 2010

January 12.2024

749.3830

786.9447

9129.696

747.9331

7163.712

1

February-

2.4779916.4178

553.1167

780.4821

4 117.31844.9971

4160.301

2

March -7.329217.3198

961.6915

565.9713

198.8375

342.1528

8170.324

3

April0.12894

515.0422

870.2595

173.8537

4103.075

763.4968

4178.373

5

May-

6.74573 16.51966.3813

881.2049

5107.014

386.5861

6176.170

3

June-

11.196118.8060

847.8147

583.5809

993.1345

7108.141

5187.149

9

July-

8.1395724.1123

852.2541

592.8406

783.4678

9110.464

6189.518

1

August-

5.0503132.0476

962.2640

386.9902

196.5882

4117.966

7195.942

7September

0.368803

37.79383

70.16299

94.18099

93.41061

129.4791

217.3205

October3.28952

336.1295

677.0203

9108.036

660.0575

7139.781

1228.670

5

November7.67603

624.5845

884.4333

9118.354

738.3778

7144.642

5229.461

5

December12.0608

144.9661

683.9624

5128.846

2 46.3148 153.657223.629

5

64

January

February

March Ap

ril May

June Jul

yAugust

September

October

November

December

-50

0

50

100

150

200

250

2004200520062007200820092010

Graph-1.7

Table-1.8 Showing Change in the % growth of Debt Fund (Dividend Option)

MonthYear

2004 2005 2006 2007 2008 2009 2010

January -

0.24964-

0.67819-

1.135590.42044

7-

0.86807-

0.97474

February 0.53717

1-

0.25299-

0.244990.60763

3-

2.18201-

0.32923

March0.41495

50.10285

5-

0.67651-

0.53512-

1.06838 -0.71980.07725

7

April0.22655

9-

0.945240.49174

70.30539

9-

3.096152.75268

50.18644

1

May-

0.20105 0.200590.37977

10.26639

81.03450

20.38917

21.30024

9

June-

1.174220.49500

5 -0.08880.29692

8-

0.74791-

0.64049-

0.07428

July-

1.68812 -0.8166-

0.120731.36075

1-

0.783373.76345

1-

0.95548

August -1.01970.49612

20.69187

10.42491

5 0.24592-

4.939340.03015

8Septembe 0.49118 0.11113 0.65557 0.113 0.44911 0.14939 0.50468

65

r 8 9 6 5 5

October-

1.11558-

0.64449-

0.397270.00977

4-

1.49023-

0.84443-

1.21257

November-

0.441390.33509

20.50747

80.76875

6 1.414181.31700

30.49230

5

December0.73468

8-

0.145580.19211

90.72714

98.57750

80.08842

70.24415

1

January

February

March Ap

ril May

June July

August

September

October

November

December

-6

-4

-2

0

2

4

6

8

10

2004200520062007200820092010

Graph-1.8

Table-1.9 Showing Change in the % growth of Debt Fund (Growth Option)

MonthYear

2004 2005 2006 2007 2008 2009 2010

January 0.64398

40.20987

9-

0.244272.59585

33.40923

90.62675

5

February 0.56258

1-

0.28296-

0.626760.71661

2-

2.77896-

0.44461

March0.78456

50.35167

7-

0.74787 -0.2989-

0.71341-

0.510060.39157

8

66

April1.13515

30.09024

10.56802

50.36294

9-

1.718295.21226

51.40504

4

May-

0.207250.20962

30.41008

70.29429

2 1.250180.50365

91.77241

2

June-

1.005080.76855

3-

0.116440.56424

6-

0.90388-

0.546760.19489

2

July-

0.596780.24209

4-

0.120732.53135

9-

0.94692-

1.728540.57955

3

August-

1.06842 0.539460.75830

60.48777

50.29736

61.98466

10.04169

4September 0.72449

0.390361

0.900809

0.397406

0.726539

0.269442

0.919318

October-

0.260540.16517

50.55233

41.57643

1-

0.70893 0.211160.29275

5

November-

0.465170.37787

2 0.564310.89619

71.72854

11.74871

50.69214

6

December0.94371

90.04630

50.39939

2 1.2226411.2522

60.31869

30.47861

7

January

February

March Ap

ril May

June Jul

yAugust

September

October

November

December

-4

-2

0

2

4

6

8

10

12

14

2004200520062007200820092010

Graph-1.9

67

Table-2.0 Showing Change in the % growth of Equity Fund (Dividend Option)

MonthYear

2004 2005 2006 2007 2008 2009 2010January -0.25735 -9.37047 -13.0439 -13.2029 0.888864 4.843917February 4.216561 2.594807 -3.97627 -6.78864 -2.10762 -1.64348March 2.071853 -8.46089 6.005056 -8.92686 -10.132 -10.545 -7.48859April 0.55299 -17.4664 6.082382 4.858903 2.31636 10.28364 1.438831May -6.88586 1.163595 -2.78107 4.535371 2.161395 11.12314 -0.94497June -4.4498 1.793092 -12.9985 1.452936 -7.61441 10.38357 4.707653July 3.493872 6.100076 3.115431 10.1174 -5.30434 1.120273 13.99072August 2.626102 6.218331 7.004493 -8.00513 7.189872 3.61559 3.008069September 5.436262 2.62012 5.538208 4.427002 -1.74221 5.544945 -4.07828October 2.914561 -1.3093 4.803491 8.517563 -18.294 4.964061 4.864193November 4.384624 -9.08321 5.196541 6.350817 0.630819 2.34627 0.339526December 4.797698 16.03569 -1.11139 4.789071 -8.16796 4.342309 -2.49784

January

February

March Ap

ril May

June July

August

September

October

November

December

-25

-20

-15

-10

-5

0

5

10

15

20

2004200520062007200820092010

Graph-2.0

Table-2.1 Showing Change in the % growth of Equity Fund (Growth Option)

68

MonthYear

2004 2005 2006 2007 2008 2009 2010

January 0.14166

14.41691

42.98233

10.85054

21.61837

710.0551

4

February 4.21537

53.73369

4-

6.46264-

12.3787-

2.93604-

3.41095

March -4.8512 0.902048.57478

1-

14.5108-

18.4805-

2.8442510.0231

2

April 7.45814-

2.277618.56796

17.88242

94.23814

721.3439

68.04917

4

May-

6.874681.47671

6-

3.878137.35121

63.93858

523.0893

1-

2.20317

June-

4.45038 2.28709-

18.5666 2.37604-

13.879721.5553

210.9795

5

July3.05654

35.30629

64.43939

79.25967

7-

9.666682.32315

52.36829

5

August3.08925

67.93531

310.0098

8-

5.8504613.1203

57.50206

66.42455

5September

5.419116

5.746132

7.898959

7.190771

-3.17763

11.51244

21.37783

October 2.92072-

1.664276.85739

713.8556

5 -33.35310.3019

311.3499

7

November4.38651

2 -11.5457.41300

110.3181

2-

21.67974.86143

10.79101

1

December4.38477

920.3815

8-

0.4709310.4914

57.93693

29.01450

1-

5.83202

69

January

February

March Ap

ril May

June July

August

September

October

November

December

-40

-30

-20

-10

0

10

20

30

2004200520062007200820092010

Graph-2.1

Table-2.2 Showing Sensex Last 7 years monthly average performance

MonthYear

2004 2005 2006 2007 2008 2009 2010January 5784.075 6591.215 9671.19 13959.35 18986.99 9572.395 16915.71February 5691.485 6639.535 10164.74 13531.23 17699.7 9115.99 16384.44March 5619.95 6609.37 10824.36 13042.92 16436 9235.69 16983.11April 5627.105 6330.52 11692.76 13342.15 16529.52 10574.51 17556.88May 5202.74 6449.09 11251.2 14266.12 16987.86 13130.25 17240.75June 4793.735 6961.62 10540.86 14630.4 15026.53 14620.18 17321.86July 4992.04 7400.435 10680.43 15118.08 13917.89 15086.54 17773.82August 5192.665 7718.72 11218.28 15331.31 14314.4 15680.71 17941.22September 5394.385 8226.69 12706 16346.55 13636.71 16409.06 19048.12October 5629.865 8277.655 12717.85 18597.49 11397.39 16541.24 20063.22November 5956.47 8389.335 13344.47 19746.71 9651.045 16383.93 19896.87December 6430.985 9105.875 13758.3 19917.04 9405.125 17206.14 20019.54

70

January

February

March

April

May

June Ju

ly

August

September

October

November

December0

5000

10000

15000

20000

25000

2004200520062007200820092010

January 2004

May 2004

September 2004

January 2005

May 2005

September 2005

January 2006

May 2006

September 2006

January 2007

May 2007

September 2007

January 2008

May 2008

September 2008

January 2009

May 2009

September 2009

January 2010

May 2010

September 2010 0

5000

10000

15000

20000

25000

Sensex Past Performance

Series1

Table Showing Regression and multiple regressions between various variables

R2 β0 β1 β2 FSensex and % Growth of Debt(Dividend) 0.128164 13579.23

525.2527 11.90735

Sensex and % Growth of Equity(Dividend) 0.490281 10346.64

206.3003 77.91114

Sensex and % Growth of Debt(Growth) 0.271208 10687.99

124.4846 30.14288

Sensex and % Growth of Equity(Growth) 0.865735 6784.044

69.36848 522.2828

% Growth of Debt(Dividend) & Change in % Growth of Debt(Dividend) 0.059417 -2.25342 0.53052 5.053663% Growth of Equity(Dividend) & Change in

0.066792 9.875963 0.587366 5.725767

71

% Growth of Equity(Dividend) % Growth of Debt(Growth) & Change in % Growth of Debt(Growth) 0.198091 13.76476 0.51405 19.76199% Growth of Equity(Growth) & Change in % Growth of Equity(Growth) 0.047229 78.38438

1.374055 3.965639

Sensex and % Growth of Debt(Dividend) and Equity(Dividend) 0.595097 11449.47

475.5888 201.5751 58.78913

Sensex and % Growth of Debt(Growth) and Equity(Growth) 0.875007 6714.609 -29.9334 75.33688 280.0185

Debt(Dividend) and Equity(Dividend) 0.00192 10.4038 0.005955

0.157715

Debt(Growth) and Equity(Growth) 0.00192 10.4038 0.005955

0.157715

1. Correlation between Debt Fund (Dividend Option) and Equity Fund (Dividend Option) is .0438.

2. Correlation between Debt Fund (Growth Option) and Equity Fund (Growth Option) is .8446.

Part-II

1. (a) Age distribution of the Investors of Gr. Noida

Age Group <= 30 31-35 36-40 41-45 46-50

No. of

Investors

10 10 15 13 7

72

<= 30 31-35 36-40 41-45 46-500

2

4

6

8

10

12

14

16

10 10

15

13

7

No. of Investors

Interpretation:

According to this chart out of 55 Mutual Fund investors of Gr. Noida most are in the age group

of 36-40 yrs. i.e. 27.27%, the second most investors are in the age group of 41-45yrs i.e. 23.63%

and the least investors are in the age group of above 45 yrs.

(b). Educational Qualification of investors of Gr. Noida

73

Educational Qualification Number of Investors

Graduate/ Post Graduate 35

Under Graduate 15

Others 5

Total 55

Graduate/ Post Grad-uate

Under Graduate Others0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

63.64%

27.27%

9.10%

Number of Investors

Number of Investors

Interpretation:

Out of 55 Mutual Fund investors 63.64% of the investors in Gr. Noida are Graduate/Post

Graduate, 27.27% are Under Graduate and 9.10% are others.

c). Occupation of the investors of Gr. Noida

74

Occupation No. of Investors

Govt. Service 15

Pvt. Service 22

Business 13

Agriculture 5

Others 0

Govt. Service Pvt. Service Business Agriculture Others0

5

10

15

20

25

15

22

13

5

0

No. of Investors

Interpretation:

In Occupation group out of 55 investors, 40% are Pvt. Employees, 23.64% are Businessman,

27.27% are Govt. Employees, 9.1% are in Agriculture and 0% are in others.

(d). Monthly Family Income of the Investors of Gr. Noida.

Income Group No. of Investors

<=10,000 0

10,001-15,000 10

15,001-20,000 12

20,001-30,000 20

>30,000 13

75

<=10,000 10,001-15,000 15,001-20,000 20,001-30,000 >30,0000

5

10

15

20

25

0

1012

20

13

No. of Investors

No. of Investors

Interpretation:

In the Income Group of the investors of Gr. Noida, out of 55 investors, 36.36% investors that is

the maximum investors are in the monthly income group Rs. 20,001 to Rs. 30,000, Second one

i.e. 23.64% investors are in the monthly income group of more than Rs. 30,000 and the minimum

investors i.e. 18.2% are in the monthly income group of below Rs. 10,000 to Rs. 15,000. And

whose income is less than Rs. 10,000, they didn’t invest in mutual funds.

2. Awareness about Mutual Fund and its Operations

76

Response Yes No

No. of Respondents 85 15

Yes No


5

15

25

35

45

55

65

75

85

No. of Respondents

No.

of R

espo

dent

s

Interpretation:

From the above chart it is inferred that 85% People are aware of Mutual Fund and its operations

and 15% are not aware of Mutual Fund and its operations.

3. Source of information for customers about Mutual Fund

Source of information No. of Respondents

Advertisement 28

Peer Group 4

77

Bank 38

Financial Advisors 15

Advertisement Peer Group Bank Financial Advisors0

5

10

15

20

25

30

35

40

28

4

38

15

No. of Respondents

Interpretation:

From the above chart it can be inferred that the Bank is the most important source of information about Mutual Fund. Out of 85 Respondents, 44.71% know about Mutual fund through Bank, 17.65% through Financial Advisor, 4.7% through Peer Group and 32.94% through Advertisement.

4. Investors invested in Mutual Fund

Response No. of Respondents

YES 55

NO 30

Total 85

78

YES NO0

10

20

30

40

50

6055

30

No. of Respondents

Interpretation:

Out of 85 People, 64.71% have invested in Mutual Fund and 35.29% have not invested in

Mutual Fund.

5. Preferred Portfolios by the Investors

Portfolio No. of Investors

Equity 20

Debt 35

79

Equity Debt0

5

10

15

20

25

30

35

40

20

35

No. of Investors

Interpretation:

From the above graph 36.36% preferred Equity Portfolio, 63.63% Debt portfolio.

6. How much risk investors are ready to take?

Risk No. of Investors

Low Risk 20

Moderate Risk 30

80

High Risk 5

Low Risk Moderate Risk High Risk0

5

10

15

20

25

30

35

No. of Investors

No. of Investors

Interpretation:

Out of the 55 investors, 36.36% want low risk in investment, 63.63% investors want moderate

risk in their investment and only 9.1% investors are ready to take high risk in their investment.

7. Investor’s expected rate of return

Expected rate of return No. of Investors

Double 45

According to Market 10

81

Double According to Market0

5

10

15

20

25

30

35

40

45

5045

10

No. of Investors

Interpretation:

Out of the 55 investors, 81.81% want double return from their investment and 18.18% want

their return according to the market scenario.

8. Investors invested in different Assets Management Co. (AMC)

Name of AMC No. of InvestorsSBIMF 35

UTI 5HDFC 7

82

Reliance 0ICICI Prudential 5

Kotak 5

SBIMF UTI HDFC Reliance ICICI Prudential Kotak0

5

10

15

20

25

30

35

40

35

57

0

5 5

No. of Investors

Interpretation:

Out of 55 investors, 63.63% invested in SBIMF, 9.1% invested in UTI, ICICI and Kotak and

12.73% invested in HDFC. No one invested in Reliance.

9. Mode of Investment Preferred by the Investors

Mode of Investment One time Investment Systematic Investment Plan (SIP)


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One time Investment Systematic Investment Plan (SIP)0

5

10

15

20

25

30

35

40

4540

15

No. of Respondents

Interpretation:

Out of 55 Investors, 72.73% preferred one time Investment and 27.27 % Preferred through

Systematic Investment Plan.

10. Preference of Investors for future investment in Mutual Fund

Type of Fund No. of Investors

Having only Debt Portfolio 28

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Having debt and equity portfolio 17

Having only equity portfolio 10

Having only Debt Portfolio Having debt and equity portfolio Having only equity portfolio0

5

10

15

20

25

30 28

17

10

No. of Investors

Interpretation:

Out of 55 investors, 50.1% chose to invest in debt portfolio only in future, 30.9% chose to invest

in debt and equity portfolio both and only 18.18% chose to invest in equity portfolio in future.

11. Option for getting Return Preferred by the Investors

Option Dividend Payout Dividend

85

Reinvestment

No. of

Respondents

20 35

Dividend Payout Dividend Reinvestment0

5

10

15

20

25

30

35

40

No. of Respondents

No. of Respondents

Interpretation:

From the above graph, 36.36% preferred Dividend Payout and 63.63% preferred Dividend

Reinvestment Option.

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Chapter – 6

Findings and

Suggestion

Findings

1. Our first model is Y=β0+ β1X where Y is dependent variable i.e. Sensex and X is dependent variable i.e. % of growth of debt (Dividend Option). R2 is .1282 which is not

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significant as expected because proportion of investment in debt fund does not affect the Sensex or stock market.

2. Similarly by taking Sensex as dependent variable and % growth of Debt Fund (Growth Option) as independent variable, the result R2 is .2712 which is again not significant as expected due to the fact that investment in debt fund doesn’t affect the Sensex.

3. By taking Sensex as dependent variable and % growth of equity fund (Dividend & Growth Option) as independent variable, the result R2 is .4903 and .8657 which is again not significant due to the fact that investment in equity fund doesn’t affect the Sensex.

4. By applying the model Y=β0+ β1X again where Y is dependent variable i.e. % growth of Debt Fund (Dividend Fund) and X is independent variable i.e. change in % growth of Debt Fund (Dividend Option). R2 is .0594 which is not significant as expected because both the variables do not affect on each other.

5. By applying the model Y=β0+ β1X again where Y is dependent variable i.e. % growth of Debt Fund (Growth Fund) and X is independent variable i.e. change in % growth of Debt Fund (Growth Option). R2 is .1981 which is not significant as expected because both the variables do not affect on each other.

6. By applying the model Y=β0+ β1X again where Y is dependent variable i.e. % growth of Equity Fund (Dividend Fund) and X is independent variable i.e. change in % growth of Equity Fund (Dividend Option). R2 is .0668 which is not significant as expected because both the variables do not affect on each other.

7. By applying the model Y=β0+ β1X again where Y is dependent variable i.e. % growth of Equity Fund (Growth Fund) and X is independent variable i.e. change in % growth of Equity Fund (Growth Option). R2 is .0472 which is not significant as expected because both the variables do not affect on each other.

8. R2 of multiple regression model Y=β0+ β1X1+ β2X2 where Y is dependent variable i.e. Sensex and X1 and X2 is independent variable i.e. % growth of Debt Fund (Dividend Option) and Equity Fund (Dividend Option) and % growth of Debt Fund (Growth Option) and Equity Fund (Growth Option). R2 is .5950 & .8750 which is quite expected as growth funds mean re-investment of dividend and interest which further increase inflow of the fund in the market and is reflected in the results i.e. change in sensex is explained 87% change by Debt and Equity (Growth Fund).

9. The correlation between Dent Fund (Dividend Option) and Equity Fund (Dividend Option) is .044 which is negligible because the change in debt fund doesn’t affect the change in equity fund.

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10. The correlation between Dent Fund (Growth Option) and Equity Fund (Growth Option) is .845, it means that they are highly correlated because growth funds mean re-investment of dividend & Interest which further increase inflow of the fund in the market and is reflected in the results.

11. In Gr. Noida, age group of 36-40 years was more in numbers. The second most investors were in the age group of 41-45 years and the least were in the age group below 46-50.

12. In Gr. Noida most of the investors were Graduate or Post Graduate and the least were from others.

13. In Occupation group most of the Investors were Pvt. employees, the second most Investors were Govt. employees and the least were associated with Agriculture.

14. In family Income group, between Rs. 20,001- 30,000 were more in numbers, the second most were in the Income group of more than Rs. 30,000 and the least were in the group of below Rs. 10,000.

15. About all the Respondents had a Saving A/c in Bank, 76% Invested in Fixed Deposits, Only 55% Respondents invested in Mutual fund.

16. Only 85% Respondents were aware about Mutual fund and its operations and 15% were not.

17. Among 100 Respondents only 55% had invested in Mutual Fund and 35% did not invest in Mutual fund.

18. Most of the Investors had invested in SBIMF; ICICI Prudential has also good Brand Position among investors.

19. Most of the investors invested in debt fund rather than equity fund.

20. Most of the investors wanted to take moderate risk in their investment and less investor were ready to take high risk.

21. 72.72% preferred One Time Investment and 27.27% preferred Systematic Investment Plan.

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22. The most preferred Portfolio was Debt, the second most was Balance (mixture of both equity and debt), and the least preferred Portfolio was Equity portfolio.

23. Maximum Number of Investors Preferred Dividend Reinvestment for returns, the second most preferred Dividend Payout.

Suggestions

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The most vital problem spotted is of ignorance. Investors should be made aware of the benefits.

Nobody will invest until and unless he is fully convinced. Investors should be made to realize

that ignorance is no longer bliss and what they are losing by not investing.

Mutual funds offer a lot of benefit which no other single option could offer. But most of the

people are not even aware of what actually a mutual fund is? They only see it as just another

investment option. So the advisors should try to change their mindsets. The advisors should

target for more and more young investors. Young investors as well as persons at the height of

their career would like to go for advisors due to lack of expertise and time.

Mutual Fund Company needs to give the training of the Individual Financial Advisors about the

Fund/Scheme and its objective, because they are the main source to influence the investors.

Before making any investment Financial Advisors should first enquire about the risk tolerance of

the investors/customers, their need and time (how long they want to invest). By considering

these three things they can take the customers into consideration.

Younger people aged under 35 will be a key new customer group into the future, so making

greater efforts with younger customers who show some interest in investing should pay off.

Customers with graduate level education are easier to sell to and there is a large untapped market

there. To succeed however, advisors must provide sound advice and high quality.

Systematic Investment Plan (SIP) is one the innovative products launched by Assets

Management companies very recently in the industry. SIP is easy for monthly salaried person as

it provides the facility of do the investment in EMI. Though most of the prospects and potential

investors are not aware about the SIP. There is a large scope for the companies to tap the

salaried persons.

Conclusion

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Running a successful Mutual Fund requires complete understanding of the peculiarities of the

Indian Stock Market and also the psyche of the small investors. This study has made an attempt

to understand the financial behavior of Debt and Equity Funds investors in connection with the

preferences of Brand (AMC), Products, and Channels etc. I observed that many of people have

fear of Mutual Fund. They think their money will not be secure in Mutual Fund. They need the

knowledge of Mutual Fund and its related terms. Many of people do not have invested in

mutual fund due to lack of awareness although they have money to invest. As the awareness and

income is growing the number of mutual fund investors are also growing.

People can invest their savings in equity fund as equity funds give the higher return but the risk

is also high there. But the risk has to be taken because until unless the risk won’t be taken, the

appreciation of fund is not possible. But with the point of view of a common man, the investor

should consider a balance portfolio while investing.

“Brand” plays important role for the investment. People invest in those Companies where they

have faith or they are well known with them. There are many AMCs in Gr. Noida but only some

are performing well due to Brand awareness. Some AMCs are not performing well although

some of the schemes of them are giving good return because of not awareness about Brand.

Reliance, UTI, SBIMF, ICICI Prudential etc. they are well known Brand, they are performing

well and their Assets Under Management is larger than others whose Brand name are not well

known like Principle, Sunderam, etc.

Distribution channels are also important for the investment in mutual fund. Financial Advisors

are the most preferred channel for the investment in mutual fund. They can change investors’

mind from one investment option to others. Many of investors directly invest their money

through AMC because they do not have to pay entry load. Only those people invest directly

who know well about mutual fund and its operations and those have time.

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Bibliography:

Books:

Kothari C.R.,”Research Methodology, Methods of Techniques,” 2nd Edition: Wiley

Eastern; 4th reprint 1993.

Advandhani, VA, Investment Management, Himalaya publishing House, Delhi, 1996

Turan & Bodla, Performance Appraisal of Mutual Funds, Excel Printers, Delhi, 2001

Articles in Journal and News Papers:

Bansal, LK, ‘Mutual Fund Investors taken for Granted by AMC’s’, Chartered Secretary,

26(4), (Apr. 1996)

Kumar N Ashok, Baskaran S,’Money Market and Performance’, Chartered Financial

Analyst, (March 1996)

Economic Times

Business Line

Internet Source:

www.ezinearticles.com

www.rediffbusiness.com

www.yahoofinance.com

www.bizfinance.com

Annexure

93

http://www.bizfinance.com/

http://www.yahoofinance.com/

http://www.rediffbusiness.com/

http://www.ezinearticles.com/

A study of Comparative Study of debt and equity funds in India

1. Personal Details:

(a). Name:- (b). Add: - Phone:- (c). Age:- (d). Qualification:-

(e). Occupation. Pl tick (√)

Govt. Ser Pvt. Ser Business Agriculture Others

(f). what is your monthly family income approximately? Pl tick (√).

Up to Rs.10,000

Rs. 10,001 to 15000

Rs. 15,001 to 20,000

Rs. 20,001 to 30,000

Rs. 30,001 and above

2. Are you aware about Mutual Funds and their operations? Pl tick (√). Yes No

3. If yes, how did you know about Mutual Fund?

a. Advertisement b. Peer Group c. Banks d. Financial Advisors

4. Have you ever invested in Mutual Fund? Pl tick (√). Yes No

5. Which sector do you think is more beneficial to invest in? (a).Debt fund (b).Equity fund

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Graduation/PG Under Graduate Others

6. How much risk you are ready to take?

7. What is your expected rate of return?

8. When you plan to invest your money in asset management co. which AMC will you prefer?

Assets Management Co.

a. SBIMF

b. UTI

c. Reliance

d. HDFC

e. Kotak

f. ICICI

9. When you invest in Mutual Funds which mode of investment will you prefer? Pl.tick (√).

a. One Time Investment b. Systematic Investment Plan (SIP)

10. When you want to invest which type of funds would you choose?

a. Having only debt portfolio

b. Having debt & equity portfolio.

c. Only equity portfolio.

11. How would you like to receive the returns every year? Pl. tick (√).

a. Dividend payout b. Dividend re-

investment

c. Growth in NAV

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debt and equity funds in India

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