Project Report- Muthulaxmi (8)

7/29/2019 Project Report- Muthulaxmi (8)

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A STUDY ON CONSUMPTION, SAVINGS ANDA STUDY ON CONSUMPTION, SAVINGS AND

INVESTMENT BEHAVIOR OF MUTUAL FUNDS WITHINVESTMENT BEHAVIOR OF MUTUAL FUNDS WITH

REFERENCE TO CUSTOMERS AT SHAREKHAN,REFERENCE TO CUSTOMERS AT SHAREKHAN,

MANGALOREMANGALORESubmitted in partial fulfillment of the

requirements for the award of the degree inMASTER OF BUSINESS ADMINISTRATIONMASTER OF BUSINESS ADMINISTRATION

SUBMITTED BYSUBMITTED BY

MUTHULAXMIMUTHULAXMI

22NDND YEAR M.B.AYEAR M.B.A

UNIVERSITY ROLL NO. 071490542UNIVERSITY ROLL NO. 071490542UNDER GUIDANCE OFUNDER GUIDANCE OF

COMPANY GUIDECOMPANY GUIDE INSTITUTE GUIDEINSTITUTE GUIDE

MR. ADARSH PROF.MR. ADARSH PROF.

R.K. ACHARYAR.K. ACHARYAASST. MANAGER FACULTY,

SHAREKHAN S.I.M.S

SRINIVAS INSTITUTE OF MANAGEMENT STUDIES

PANDESHWAR, MANGALORE

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APRIL 2009

INTRODUCTION

The concept of consumption is one that varies between the academic

community, governments and between individuals. According to some

economists, only the final purchase of goods and services constitutes

consumption, and every other commercial activity is some form of

production. Other economists define consumption much more broadly, as

the aggregate of all economic activity that does not entail the design,

production and marketing of goods and services (e.g. "the selection,

adoption, use, disposal and recycling of goods and services").

Likewise, consumption can be measured by a variety of different

matrix. The total consumer spending in an economy is generally calculated

using the consumption function, a matrix devised by John Maynard Keynes,

which simply takes the aggregate disposable income and multiplies it by a

"marginal propensity to consume". This matrix essentially definesconsumption as the part of disposable income that does not go into savings.

But disposable income in turn can be defined in a number of ways - e.g. to

include borrowed funds or expenditures from savings.

John Maynard Keynes developed the idea of the consumption

function, which sees consumption as consisting of two main parts:

1. Induced consumption refers to increases in consumer spending

occurring as disposable income rises. Increases in consumption follow the

famous marginal propensity to consume. An increase in disposable income

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leads to an increase in consumption, moving along the consumption

function in a graph.

2. Autonomous consumption refers to consumption spending done as

part of long-term plans for the future (smoothing out income fluctuations,

providing for retirement and other expected future events, etc.) and as a

result of habits and contractual commitments. Changes in plans,

expectations, habits, etc. leads to shifts of the consumption function in a

graph.

Often, as in the permanent income hypothesis, the word "consumption"

refers instead to the benefit received from consumer goods and services (as

opposed to the amount spent on such products).

The consumption function orpropensity to consume refers to income

consumption relationship. Consumption function is a functional

relationship between two aggregates i.e., total consumption and gross

national income.

This relationship is expressed as :

C = f(y)

where: c = consumption ( dependent variable)

y = income ( independent variable)

f = functional relationship.

Keynes Consumption Function or The Absolute Income Hypothesis:

Keynes highlighted the functional relationship between income and

consumption expenditure of an individual or of a household and hence of

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the economy. He developed the concept of the Consumption Function

indicating a functional relationship between income and consumption

expenditure. According to him, the current consumption expenditure of

economy depends on the absolute level of its current disposable income.

CONSUMPTION SCHEDULE

The above table shows that consumption is an increasing function of

income because consumption expenditure increases with increase in

income. Here it is shown that when income is zero during the depression,

people spend out of their past savings on consumption because they must

eat in order to live. When income is generated in the economy to the extent

of Rs 60 crores, it is not sufficient to meet the consumption expenditure of

the community so that the consumption expenditure of Rs 70 crores is still

above the income amounting to Rs 60 crores ( Rs 10 crores are dis-saved).

When both consumption expenditure and income equal Rs 120 crores, it is

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INCOME (Y) CONSUMPTION

C = F(Y)

0

60

120

180

240

300

360

20

70

120

170

220

270

320


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the basic consumption level. After this, income is shown to increase by 60

crores and consumption by 50 crores. This implies a stable consumption

function during the short-run as assumed by Keynes.

The consumption function has two technical attributes or properties:

i. The Average propensity to consume and

ii. The Marginal propensity to consume

The Average Propensity to Consume : The average propensity to

consume may be defined as the ratio of consumption expenditure to any

particular level of income. It is found by dividing consumption

expenditure by income or APC = C/Y. It is expressed as the percentage or

proportion of income consumed.

The Marginal Propensity to Consume : The marginal propensity to

consume may be defined as the ratio of the change in consumption to the

change in income or as the rate of change in the average propensity toconsume as income changes. It can be found by dividing change in

consumption by a change in income.

The MPC is assumed to be positive. Thus, as income increases,

consumption increases. However, Keynes mentioned that the increases (for

income and consumption) are not equal. According to him, "as income

increases, consumption increases but not by as much as the increase in

income".

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The Keynesian consumption function is also known as the absolute

income hypothesis, as it only bases consumption on current income and

ignores potential future income (or lack of).

In common usage, saving generally means putting money aside, for

example, by putting money in the bank or investing in a pension plan. In a

broader sense, saving is typically used to refer to economizing, cutting

costs, or to rescuing someone or something. In terms of personal finance,

saving refers to preserving money for future use - typically by putting it on

deposit - this is distinct from investment where there is an element of risk.

"Saving" differs from "savings." The former refers to an increase in

one's assets, an increase in net worth, whereas the latter refers to one part of

one's assets, usually deposits in savings accounts, or to all of one's assets.

Saving refers to an activity occurring over time, a flow variable, whereas

savings refers to something that exists at any one time, a stock variable.

Saving is closely related to investment. By not using income to buy

consumer goods and services, it is possible for resources to instead be

invested by being used to produce fixed capital, such as factories and

machinery. Saving can therefore be vital to increase the amount of fixed

capital available, which contributes to economic growth.

However, increased saving does not always correspond to increased

investment, if savings are stashed in a mattress or otherwise not deposited

into a financial intermediary like a bank there is no chance for those savings

to be recycled as investment by business. This means that saving may

increase without increasing investment, possibly causing a short-fall of

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demand (a pile-up of inventories, a cut-back of production, employment,

and income, and thus a recession) rather than to economic growth. In the

short term, if saving falls below investment, it can lead to a growth of

aggregate demand and an economic boom. In the long term if saving falls

below investment it eventually reduces investment and detracts from future

growth. Future growth is made possible by foregoing present consumption

to increase investment. However savings kept in a mattress amount to an

(interest-free) loan to the government or central bank, who can recycle this

loan.

Saving in personal finance

Within personal finance the act ofsaving corresponds to nominal

preservation of money for future use, although inflation can still erode its

real value. A deposit account paying interest is typically used to hold

money for future needs, i.e. an emergency fund, to make a capital purchase

(car, house, vacation, etc.) or to give to someone else (children, tax bill

etc.).

Savings within personal finance refers to the accumulated money put aside

by saving.

Within personal finance, money used to purchase shares, put in a

collective investment scheme or used to buy any asset where there is an

element of capital risk is deemed an investment. This distinction is

important as the investment risk can cause a capital loss when an

investment is realized, unlike cash saving(s). Some risk applies to savings

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in a deposit account: real value is lost when inflation exceeds after-tax

interest rates, and in extreme cases loss can occur due to bank failure.

In many instances the terms saving and investment are used

interchangeably. For example many deposit accounts are labeled as

investment accounts by banks for marketing purposes. To help establish

whether an asset is saving(s) or an investment you should ask yourself,

"Where is my money invested?" If the answer is cash then it is savings, if it

is a type of asset which can fluctuate in nominal value then it is investment.

SAVING AND INVESTMENT EQUALITY

Keynes put forth two views with regard to the saving-investment

equality. The first is the accountingordefinitionalequality between saving

and investment which is used in national income accounting. It tells us that

actual saving and actual investment are always equal at all times and at

any level of income. The second is the functional equality. In this sense,

saving and investment are equal only at the equilibrium level of income. In

other words, in the functional sense, saving and investment are not only

equal but they are also in equilibrium.

1. The Accounting or Definitional Equality: Keynes wrote in his General

Theory that saving and investment are necessarily equal in amount for the

community as a whole, being different aspects of the same things. In order

to show it, he defined saving and investment in such as manner as to

establish their equality. Both saving and investment in the current period

are defined as the excess of current income over current consumption, (Y t

Ct) so that they are necessarily equal. Symbolically

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St = Yt Ct .....................(1)

It = Yt Ct .......................(2)

Yt Ct is common in equation (1) and (2), we have

St = It, where S is saving, I is investment, Y is income, C is

consumption and t is current period.

Keynes also established this equality in another way. He defined income in

the current period (Yt) as equal to current consumption (Ct) plus current

investment (It); and saving in the current period (St) as the excess of current

income over current consumption.

Thus, Yt = Ct + It .......................(1)

Yt = St + Ct ........................(2)

( St = Yt Ct)

Therefore, from equations (1) and (2), we have

Ct + It = St + Ct

It = St

Thus saving and investment are the same thing. They are both the

difference between income and consumption. So defined, they are always

equal.

2. The Functional Equality : In this sense, saving and investment are

equal only at the equilibrium level of income. Income is functionally related

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to saving and investment. When saving is more than the investment, income

falls, and when investment is more than saving, income rises. This dynamic

process of changes in income, saving and investment will continue till

saving and investment are not only equal but are also in equilibrium.

SAVING-INVESTMENT EQUALITY

( Rs crores)

Income Saving Investment Income Movements

100

200

300

400

500

600

700

800

900

- 15

0

15

30

45

60

75

90

105

10

20

30

40

50

60

70

80

90

Expansion

Equilibrium

Contraction

The above table shows that so long as investment is greater than saving

income continues to increase till it reaches the equilibrium level of Rs 600

crores where saving and investment equal Rs 60 crores each. But after thispoint, saving exceeds investment and the equilibrium is reached when

income contracts and again reaches Rs 600 crores.

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INDUSTRY PROFILE

A Mutual Fund is a trust that pools the savings of a number of investors

who share a common financial goal. The money thus collected is invested

by the fund manager in different types of securities depending upon the

objective of the scheme. These could range from shares to debentures to

money market instruments. The income earned through these investments

and the capital appreciation realized by the scheme is shared by its unit

holders in proportion to the number of units owned by them (pro rata). Thus

a Mutual Fund is the most suitable investment for the common man as it

offers an opportunity to invest in a diversified, professionally managed

portfolio at a relatively low cost. Anybody with an investable surplus of as

little as a few thousand rupees can invest in Mutual Funds. Each Mutual

Fund scheme has a defined investment objective and strategy.

In other words, 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. Mutual fund issues units to the investors in

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accordance with quantum of money invested by them. Investors of mutual

funds are known as unit holders.

The profits or losses are shared by the investors in proportion to their

investments. The mutual funds normally come out with a number of

schemes with different investment objectives which are launched from time

to time. A mutual fund is required to be registered with Securities and

Exchange Board of India (SEBI) which regulates securities markets before

it can collect funds from the public.

How is a mutual fund set up?

ORGANISATION OF MUTUAL FUND

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A mutual fund is set up in the form of a trust, which has sponsor, trustees,

asset Management Company (AMC) and custodian. The trust is established

by a sponsor or more than one sponsor who is like promoter of a company.

The trustees of the mutual fund hold its property for the benefit of the unit

holders. Asset Management Company (AMC) approved by SEBI manages

the funds by making investments in various types of securities. Custodian,

who is registered with SEBI, holds the securities of various schemes of the

fund in its custody. The trustees are vested with the general power of

superintendence and direction over AMC. They monitor the performance

and compliance of SEBI Regulations by the mutual fund.

SEBI Regulations require that at least two thirds of the directors of trusteecompany or board of trustees must be independent i.e. they should not be

associated with the sponsors. Also, 50% of the directors of AMC must be

independent. All mutual funds are required to be registered with SEBI

before they launch any scheme.

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Working of Mutual Fund:

MUTUAL FUND OPERATION FLOW CHART

A mutual fund is the ideal investment vehicle for todays complex and

modern financial scenario. Markets for equity shares, bonds and other fixed

income instruments, real estate, derivatives and other assets have become

mature and information driven. Price changes in these assets are driven by

global events occurring in faraway places. A typical individual is unlikely

to have the knowledge, skills, inclination and time to keep track of events,

understand their implications and act speedily. An individual also finds it

difficult to keep track of ownership of his assets, investments, brokerage

dues and bank transactions etc.

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A mutual fund is the answer to all these situations. It appoints

professionally qualified and experienced staff that manages each of these

functions on a full time basis. The large pool of money collected in the fund

allows it to hire such staff at a very low cost to each investor. In effect, the

mutual fund vehicle exploits economies of scale in all three areas - research,

investments and transaction processing. While the concept of individuals

coming together to invest money collectively is not new, the mutual fund in

its present form is a 20th century phenomenon. In fact, mutual funds gained

popularity only after the Second World War. Globally, there are thousands

of firms offering tens of thousands of mutual funds with different

investment objectives. Today, mutual funds collectively manage almost as

much as or more money as compared to banks.

A draft offer document is to be prepared at the time of launching the fund.

Typically, it pre specifies the investment objectives of the fund, the risk

associated, the costs involved in the process and the broad rules for entry

into and exit from the fund and other areas of operation. In India, as in most

countries, these sponsors need approval from a regulator, SEBI (Securities

exchange Board of India) in our case. SEBI looks at track records of the

sponsor and its financial strength in granting approval to the fund for

commencing operations.

A sponsor then hires an asset management company to invest the funds

according to the investment objective. It also hires another entity to be the

custodian of the assets of the fund and perhaps a third one to handle registry

work for the unit holders (subscribers) of the fund.

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In the Indian context, the sponsors promote the Asset Management

Company also, in which it holds a majority stake. In many cases a sponsor

can hold a 100% stake in the Asset Management Company (AMC). E.g.

Birla Global Finance is the sponsor of the Birla Sun Life Asset

Management Company Ltd., which has floated different mutual funds

schemes and also acts as an asset manager for the funds collected under the

schemes.

It is widely believed that MUTUAL FUND is a retail product designed to

target small investors, salaried people and others who are intimidated by the

stock market but, nevertheless, like to reap the benefits of stock market

investing. At the retail level, investors are unique and are a highly

heterogeneous group. Hence, designing a general product and expecting a

good response will be futile, though UTI could do this nearly for three

decades (1964-1987) due to its monopoly in the industry. In the second

phase of oligopolistic competition (1987-1992), the public sector banks and

financial institutions entered the field, but with the then existing boom

condition, it was a smooth sailing for the industry. Further, the globalisation

and liberalization measures announced by the government led to a paradigm

shift in the mind set of investors and the capital market environment

became more unfriendly to retail investors. They had no other choice but to

turn to MUTUAL FUNDS to reap the benefits of stock market investing.

Hence, the need to be innovative in designing the product was not felt and

investors had to choose from among the limited schemes offered. During

the third phase (1992 hence) the industry was thrown open to the private

sector and the stage got set for competition.

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ORIGIN, GROWTH AND DEVELOPMENT OF THE MUTUAL

FUND INDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit

Trust of India, at the initiative of the Government of India and Reserve

Bank of India.

The history of mutual funds in India can be broadly divided into four

distinct phases:

First Phase 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament.

It was set up by the Reserve Bank of India and functioned under the

Regulatory and administrative control of the Reserve Bank of India. In

1978, UTI was de-linked from the RBI and the Industrial Development

Bank of India (IDBI) took over the regulatory and administrative control in

place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At

the end of 1988 UTI had Rs.6, 700 crores of assets under management.

Second Phase 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by

public sector banks and Life Insurance Corporation of India (LIC) and

General Insurance Corporation of India (GIC). SBI Mutual Fund was the

first non- UTI Mutual Fund established in June 1987 followed by Canbank

Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89),

Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of

Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989

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while GIC had set up its mutual fund in December 1990. At the end of

1993, the mutual fund industry had assets under management of Rs.47, 004

crores.

Third Phase 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the

Indian mutual fund industry, giving the Indian investors a wider choice of

fund families. Also, 1993 was the year in which the first Mutual Fund

Regulations came into being, under which all mutual funds, except UTI

were to be registered and governed. The erstwhile Kothari Pioneer (now

merged with Franklin Templeton) was the first private sector mutual fund

registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were

substituted by a more comprehensive and revised Mutual Fund Regulations

in 1996. The industry now functions under the SEBI (Mutual Fund)

Regulations 1996. The number of mutual fund houses went on increasing,

with many foreign mutual funds setting up funds in India and also the

industry has witnessed several mergers and acquisitions. As at the end of

January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805

crores. The Unit Trust of India with Rs.44, 541 crores of assets under

management was way ahead of other mutual funds.

Fourth Phase since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963

UTI was bifurcated into two separate entities. One is the Specified

Undertaking of the Unit Trust of India with assets under management of

Rs.29, 835 crores as at the end of January 2003, representing broadly, the

assets of US 64 scheme, assured return and certain other schemes. The

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Specified Undertaking of Unit Trust of India, functioning under an

administrator and under the rules framed by Government of India and does

not come under the purview of the Mutual Fund Regulations. The second is

the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is

registered with (Security Exchange Board of India) SEBI and functions

under the Mutual Fund Regulations. With the bifurcation of the erstwhile

UTI which had in March 2000 more than Rs.76, 000 crores of assets under

management and with the setting up of a UTI Mutual Fund, conforming to

the SEBI Mutual Fund Regulations, and with recent mergers taking place

among different private sector funds, the mutual fund industry has entered

its current phase of consolidation and growth.

ADVANTAGES OF MUTUAL FUNDS:

The advantages of investing in a Mutual Fund are:

Diversification: The best mutual funds design their portfolios so

individual investments will react differently to the same economic

conditions. For example, economic conditions like a rise in interest rates

may cause certain securities in a diversified portfolio to decrease in value.

Other securities in the portfolio will respond to the same economic

conditions by increasing in value. When a portfolio is balanced in this way,

the value of the overall portfolio should gradually increase over time, even

if some securities lose value.

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Professional Management: Most mutual funds pay topflight professionals

to manage their investments. These managers decide what securities the

fund will buy and sell.

Regulatory oversight: Mutual funds are subject to many government

regulations that protect investors from fraud.

Liquidity: It's easy to get your money out of a mutual fund. Write a check,

make a call, and you've got the cash.

Convenience: You can usually buy mutual fund shares by mail, phone, or

over the Internet.

Low cost: Mutual fund expenses are often no more than 1.5 percent of

your investment. Expenses for Index Funds are less than that, because index

funds are not actively managed. Instead, they automatically buy stock in

companies that are listed on a specific index

Transparency

Flexibility

Tax benefits

The graph indicates the growth of assets over the years.

GROWTH IN ASSETS UNDER MANAGEMENT

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TYPES OF MUTUAL FUND SCHEMES

Wide variety of Mutual Fund Schemes exists to cater to the needs such as

financial position, risk tolerance and return expectations etc. The table

below gives an overview into the existing types of schemes in the Industry.

TYPES OF MUTUAL FUND SCHEMES:

BY STRUCTURE

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Open Ended Schemes

Close Ended Schemes

Interval Schemes

BY INVESTMENT OBJECTIVE

Growth Schemes

Income Schemes

Balanced Schemes

Money Market Schemes

OTHER SCHEMES

Tax Saving Schemes

Special Schemes

Index Schemes

Sector Specific Schemes

BY STRUCTURE:

Open-ended Funds

An open-end fund is one that is available for subscription all through the

year. These do not have a fixed maturity. Investors can conveniently buy

and sell units at Net Asset Value ("NAV") related prices. The key feature of

open-end schemes is liquidity.

Close-ended Funds

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A close-end fund has a stipulated maturity period which generally ranging

from 3 to 15 years. The fund is open for subscription only during a

specified period. Investors can invest in the scheme at the time of the initial

public issue and thereafter they can buy or sell the units of the scheme on

the stock exchanges where they are listed. In order to provide an exit route

to the investors, some close-ended funds give an option of selling back the

units to the Mutual Fund through periodic repurchase at NAV related

prices. SEBI Regulations stipulate that at least one of the two exit routes is

provided to the investor.

Interval Funds

Interval funds combine the features of open-ended and close-ended

schemes. They are open for sale or redemption during pre-determined

intervals at NAV related prices.

BY INVESTMENT OBJECTIVE:

Growth Funds

The aim of growth funds is to provide capital appreciation over the medium

to long- term. Such schemes normally invest a majority of their corpus in

equities. It has been proven that returns from stocks, have outperformed

most other kind of investments held over the long term. Growth schemes

are ideal for investors having a long-term outlook seeking growth over a

period of time.

Income Funds

The aim of income funds is to provide regular and steady income to

investors. Such schemes generally invest in fixed income securities such as

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bonds, corporate debentures and Government securities. Income Funds are

ideal for capital stability and regular income.

Balanced Funds

The aim of balanced funds is to provide both growth and regular income.

Such schemes periodically distribute a part of their earning and invest both

in equities and fixed income securities in the proportion indicated in their

offer documents. In a rising stock market, the NAV of these schemes may

not normally keep pace, or fall equally when the market falls. These are

ideal for investors looking for a combination of income and moderate

growth.

Money Market Funds

The aim of money market funds is to provide easy liquidity, preservation of

capital and moderate income. These schemes generally invest in safer short-

term instruments such as treasury bills, certificates of deposit, commercial

paper and inter-bank call money. Returns on these schemes may fluctuate

depending upon the interest rates prevailing in the market. These are ideal

for Corporate and individual investors as a means to park their surplus

funds for short periods.

Load Funds

A Load Fund is one that charges a commission for entry or exit. That is,

each time you buy or sell units in the fund, a commission will be payable.

Typically entry and exit loads range from 1% to 2%. It could be worth

paying the load, if the fund has a good performance history.

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No-Load Funds

A No-Load Fund is one that does not charge a commission for entry or exit.

That is, no commission is payable on purchase or sale of units in the fund.

The advantage of a no load fund is that the entire corpus is put to work.

OTHER SCHEMES:

Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of

the Indian Income Tax laws as the Government offers tax incentives for

investment in specified avenues. Investments made in Equity Linked

Savings Schemes (ELSS) and Pension Schemes are allowed as deduction

u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to

investors to save capital gains u/s 54EA and 54EB by investing in Mutual

Funds, provided the capital asset has been sold prior to April 1, 2000 and

the amount is invested before September 30, 2000.

SPECIAL SCHEMES

Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the offer

document. The investment of these funds is limited to specific industries

like InfoTech, FMCG, and Pharmaceuticals etc.

Index Schemes

Index Funds attempt to replicate the performance of a particular index such

as the BSE Sensex, NSE Nifty (50), BSC 100, NSC Midcap, etc.

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Sectoral Schemes

Sectoral Funds are those, which invest exclusively in a specified industry or

a group of industries or various segments such as 'A' Group shares or initial

public offerings.

Mutual Fund Companies in India

The concept of mutual funds in India dates back to the year 1963. The

era between 1963 and 1987 marked the existence of only one mutual fund

company in India with Rs. 67bn assets under management (AUM), by the

end of its monopoly era, the Unit Trust of India (UTI). By the end of the

80s decade, few other mutual fund companies in India took their position in

mutual fund market.

The new entries of mutual fund companies in India were SBI Mutual Fund,

Canbank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank

Mutual Fund, Bank of India Mutual Fund.

The succeeding decade showed a new horizon in Indian mutual fund

industry. By the end of 1993, the total AUM of the industry was Rs. 470.04

bn. The private sector funds started penetrating the fund families. In the

same year the first Mutual Fund Regulations came into existence with re-

registering all mutual funds except UTI. The regulations were further given

a revised shape in 1996.

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Kothari Pioneer was the first private sector mutual fund company in India

which has now merged with Franklin Templeton. Just after ten years with

private sector players penetration, the total assets rose up to Rs. 1218.05 bn.

Today there are 33 mutual fund companies in India.

FREQUENTLY USED TERMS

Net Asset Value (NAV)

Net Asset Value is the market value of the assets of the scheme minus its

liabilities. The per unit NAV is the net asset value of the scheme divided

by the number of units outstanding on the Valuation Date.

Sale Price

Is the price you pay when you invest in a scheme. Also called Offer Price. It

may include a sales load.

Repurchase Price

Is the price at which a close-ended scheme repurchases its units and it may

include a back-end load. This is also called Bid Price.

Redemption Price

Is the price at which open-ended schemes repurchase their units and close-

ended schemes redeem their units on maturity. Such prices are NAV

related.

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Sales Load

Is a charge collected by a scheme when it sells the units. Also called,

Front-end load. Schemes that do not charge a load are called No Load

schemes.

Repurchase or Back-end Load

Is a charge collected by a scheme when it buys back the units from the unit

holders.

COMPANY PROFILE

Sharekhan , one of India's leading financial services companies. They

provide a complete life-cycle of investment solution in Equities,

Derivatives, Commodities, IPO, Mutual Funds, Depository Services,

Portfolio Management Services and Insurance. They also offer personalized

wealth management services for High Networth individuals.

Share khan, previously owned by SSKI group but currently 72% of the

company is owned by Citi group. With over 900 share shops in 170

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cities, and India's premier online trading portal www.sharekhan.com,

Sharekhans customers enjoy multi-channel access to the stock markets.

Been in the business for over 80 years, Share khan can provide the

clients the assistance and the advice like no one else could. Sharekhan

offers trade execution facility on the BSE and NSE, for both cash and

derivatives market, commodity trading facility on the MCX and NCDEX,

automated IVRS-based trading facility from your telephone, depository

services and most importantly, investment advice tempered by 80 years of

research and broking experience. There are 190 branches, 500 outlets, more

than 700 franchisee all over India. And among these 12 branches are

present in Karnataka, 10 in Bangalore,1 in Mysore,1in Mangalore. Head

office is located in Mumbai which is headed by the CEO- Tarun Shah.

The main business of Sharekhan is trading in Equities and

Derivatives& Commodities and their other businesses include Portfolio

Management, distribution of mutual funds, Insurance. They have services

like Online, Offline, Dial and Trade, SMS facilities and E-mails. The Staff

strength of Mangalore Branch is 12.

With a Sharekhan online trading account, customer can buy and

sell shares in an instant! Anytime and from anywhere Customer can choose

the online trading account that suits his trading habits and preferences.

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Sharekhan is an equities focused organization tracing its lineage to

SSKI, a veteran equities solutions company with over 8 decades of

experience in the Sharekhan does not claim expertise in too many things.

Sharekhans expertise lies in stocks and thats what he talks about with

authority. So when he says that investing in stocks should not be confused

with trading in stocks or a portfolio-based strategy is better than betting on

a single horse, it is something that is spoken with years of focused learning

and experience in the stock markets.

ShareKhan gives the customers the facility to trade on the web

without going to the terminal, which is also called as online trading; it

also provides the customers the facility to trade through offline by means of

phone also known as Dial-N-Trade. Retail broking started in 1985,

founding member of the Bombay Stock Exchange.

Sharekhan is a part of the SSKI group which has not only

investments in retail broking, institutional broking, and investment banking

but also in Film Productions under the banner (I - Dream Productions). And

SSKI offers services like private equity, infrastructure advisory and

financing, mergers and acquisitions (M&A), initial public offerings and

debt syndication.

Sharekhan, Indias leading stockbroker is the retail arm of SSKI, an

organization with over eight decades of stock market experience. With

more that 337 share shops in over 131 cities, and a strong presence on the

Internet through, Indias premier online trading destination, sharekhan

reach out to customers like no one else. To ensure that your trading

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experience with Sharekhan is fast, secure and hassle free. Sharekhan offer a

suite of products and services, providing you with a multi-channel access to

the stock markets.

The SSKI group also comprises of Institutional Broking and Corporate

Finance. While the Institutional Broking division caters to the largest

domestic and foreign institutional investors FIIs, the corporate finance

division focuses on niche areas such as infrastructure, telecom and media.

SSKI holds a sizeable portion of the market in each of these segments.

As the forerunner of investment research in the Indian market, we

provide the best research coverage amongst broking houses in India. Its

research has been rated as one of the best in the country. Voted four times

as the top domestic brokerage house by the Asia money survey, SSKI is

constantly ranked amongst the top domestic brokerages houses in India.

Sharekhans latest offering Portfolio Management Serivices, will

leverage on Sharekhans institutional and retail research capabilities and on

the information that it enjoy large distribution. It offers equity portfolio

management services to help its clients earn healthy returns from the stock

markets and thereby leaving its clients free to concentrate on what they do

best-earn from their respective business.

Competitors:

The main most competitors of Share khan Ltd are:-

Kotak Securities Ltd( Main competitors)

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Motilal Oswal( Main competitors)

Reliance Money( Main competitors)

Karvy

ABN AMRO

Axis Securities

ICICI Direct

IDBI Capital

Geojit

Angel Broking

HDFC Securities

Religare

India Bulls Financial Services Limited

India Infoline.

CUSTOMERS

Share khan is a good financial products and service provider so that

customers are increasing year by year.

Customers are minimum age of 18 years can be Individuals, NRIs,

HNIs( Highly net worth individuals ), HUFs, Registered Trusts, and

Corporates, Salaried person , Young investors, Speculators.

COMMISSION AND FEES OF SHAREKHAN:For Intra-day Trades :-

0.1% on the buy side and 0.1% on the sell side. This is subject to a

minimum brokerage of 5 paise per share. This means that if the share price

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you trade in is Rs 50/- or less, a minimum brokerage of 5 paise per share

will be charged.

For Delivery Based Trades :-

0.5% on the buy side and 0.5% on the sell side. This is subject to a

minimum brokerage of 10 paise per share. Minimum brokerage of 10 paise

per share will be applicable when the share price is Rs 20/- or less.

Brokerage of Rs 16/- per scrip will be applicable when the total traded

value is Rs 3200/- or less in case of sell transaction.

A Sharekhan outlet offers the following services:

Online BSE and NSE executions (through BOLT & NEAT

terminals)

Free access to investment advice from Sharekhan's Research team

Sharekhan ValueGuide (a monthly publication with reviews of

recommendations, stocks to watch out for etc)

Daily research reports and market review (High Noon & Eagle Eye)

Pre-market Report (Morning Cuppa)

Daily trading calls based on Technical Analysis

Personalised Advice

Live Market Information

Depository Services: Demat & Remat Transactions

Derivatives Trading (Futures and Options)

Commodities Trading

IPOs & Mutual Funds Distribution

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Applicable Rules and Regulations

All transactions in our Account shall be subject to the constitution, rules,

regulations, customs and usage of the exchange or market, and its clearing

house, if any, where the transactions are executed by Sharekhan or its

agents, including Sharekhan's subsidiaries and affiliates. Also, where

applicable, the transactions shall be subject to the provisions of the

Securities and Contracts Regulations Act (SCRA), as amended, and to the

rules and regulations of the Securities and Exchange Board of India (SEBI),

National Securities Depository Limited (NSDL), the exchanges where

Sharekhan will facilitate trading, and any applicable self-regulatoryorganization.

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RESEARCH DESIGN

The study is about the consumption pattern, the savings and investment

attitude of the investors towards Mutual Funds. The study analyses the

income level of the samples, their likely consumption expenditure,

availability of the savings their propensity to invest the savings in different

income generating, tax saving and growth oriented products of Mutual

Fund.

OBJECTIVES OF THE STUDY

1. To study the investors attitude and preferences towards

investment in Mutual Funds

2. To study the consumption savings and investment profile of the

investors.

3. To study the correlation between the income and likely

willingness or ability to invest.

4. To study the factors affecting not opting Mutual Funds for

investment.

DATA COLLECTION:

Primary data was gathered in the form of survey conducted through

questionnaires.

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Secondary data collection involved collection of data through

books, websites and company records.

SAMPLING TECHNIQUE:

Judgmental sampling technique is used for the survey, in which the

target audiences were chosen according to the convenience of theresearcher.

STATISTICAL TOOL:

The study also includes charts and graphical presentation of the

collected data to give clear picture of the theoretical information collected.

The collected data are qualitatively presented with the help of bar diagrams

and charts.

SCOPE:

Study is observed on about 50 investors with regard to Sharekhan

Private Ltd.

LIMITATION OF THE STUDY:

Result obtained from the selected sample size can not generalized

or accepted for all investors.

As the data was collected from the primary source personal bias of

the investor might have been obtained.

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As the market is witnessing a recessionary phase the results might

not be accurate.

AGE

Table 4.1

Particulars No. of respondents Percentage

18-25 9 18%

26-40 28 56%

41-55 10 20%

Above 55 3 6%

Total 50 100%

Chart 4.1

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INTERPRETATION

The above table indicates that 74% of the respondents are below 40 age

group and 20% of the respondents are between 41 to 55 age group and 6%

of the respondents are above 55 age.

GENDER

Table 4.2


Male 38 76%

Female 12 24%Total 50 100%

Chart 4.2

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INTERPRETATION:

The above table states that 24% of the respondents are female and 76% of

the respondents are male.

MARITAL STATUS

Table 4.3


Un-Married 28 56%

Married 22 44%

Total 35 100%

Chart 4.3

INTERPRETATION:

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The above table indicates that 56% of the respondents are Un-

married and around 44% of respondents are married.

EDUCATION

Table 4.4


P U C 6 12%

Graduation 32 64%

Post Graduation 9 18%Professional 3 6%

Total 50 100%

Chart 4.4

INTERPRETATION:

The above shown table states that 12% of the respondents are having

the education of P.U.C., then 64% of the respondents were graduates, 18%

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of the respondents were post graduates and around 6% of the respondents

were professionals.

OCCUPATIONAL STATUS

Table 4.5

Particulars (Years) No. of respondents Percentage

Salaried 36 72%

Business 4 8%

Professionals 4 8%

Others 6 12%

Total 50 100%

Chart 4.5

INTERPRETATION:

The above chart indicates that 72% of the respondents are salaried

employees, around 8% of respondents are owning business, 8% of the

respondents are professionals and 12% of the respondents are having other

occupational.

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MONTHLY INCOMETable 4.6

Particulars (Rs.) No. of respondents Percentage

Below 20000 27 54%20000 30000 13 26%

Above 30000 10 20%

Total 50 100%

Chart 4.6

INTERPRETATION:

The above shown table denotes that 54% of the respondents earn

below Rs.20000 per month, then 26% of the respondents earn between

Rs.20000 - 30000 per month and around 20% of the respondents earning

level in above Rs.30000 per month.

AVERAGE MONTHLY SAVINGS

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Table 4.7


Below 5% 20 40%

5%-10% 25 50%10%-15% 5 10%

Above 15% 0 0

Total 50 100%

Chart 4.7

INTERPRETATION:

The above table shows that 40% of the respondents save below 5%,

then 50% of the respondents save between 5%-10% and 10% of the

respondents save between 10%-15%.

HOW DO YOU PLAN YOUR INVESTMENT?

Table 4.8


Own discretion 15 30%

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Help of friends 20 40%

Financial

Consultants / Agents

10 20%

Others 5 10%

Total 50 100%

Chart 4.8

INTERPRETATION:

The above table shows that 40% of the respondents plan their

investment by help of their friends, 30% of the respondents by their own

discretion, 20% of the respondents by the financial consultants or agents

and 10% of the respondents by others.

MAJOR MODES OF INVESTMENT

Table 4.9

Particulars No. of Respondents Percentage

SB Account 8 16%

FD Account 8 16%

Corporate Securities 4 8%

Mutual Funds 15 30%

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Own discretion

30%

Help of friends40%

FinancialConsultants/Ag

ents

20%

Others10%


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Real Estate 8 16%

Gold/Jewellery 7 14%

Any other 0 0

Total 50 100%

Chart 4.9

SB Account16%

FD Account16%

CorporateSecurities

8%

Mutual Funds30%

Real Estate16%

Gold/Jewellery

14%

Any other

0%

INTERPRETATION:

The above table states that 30% of the respondents invest their money on

Mutual funds, 16% of respondents on Real estate, 16% on FD Account,

16% SB Account, 14% of respondents on gold/jewellery and 8% of the

respondents on corporate securities.

WHY DO YOU PREFER SB ACCOUNT?

Table 4.10


High Liquidity 2 25%

High Return 0 0

Low Risk 1 12%

Convenience 5 63%

Any other 0 0

Total 8 100%

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Chart 4,10

INTERPRETATION:

From the above table we can state that 25% of the respondents have

opted SB Account because of high liquidity, 12% of the respondents wish

because of its low risk and 63% prefer SB A/c because it is convenience.

WHY DO YOU PREFER FD ACCOUNT?

Table 4.11


High Liquidity 0 0

High Return 4 50%

Low Risk 4 50%

Convenience 0 0

Any other 0 0Total 8 100%

Chart 4.11

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INTERPRETATION:The above table shows that 50% of the respondents found that their

investment option will give them high return and remaining 50% favored

because of its low risk.

WHY DO YOU PREFER CORPORATE SECURITIES?

Table 4.12


High Liquidity 1 25%

High Return 3 75%

Low Risk 0 0

Convenience 0 0

Any other 0 0

Total 4 100%

Chart 4.12

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INTERPRETATION:The above chart shows that 25% of the respondents choose corporate

securities because of high liquidity and 75% wish as it gives high return.

WHY DO YOU PREFER MUTUAL FUND?

Table 4.13


High Liquidity 0 0

High Return 8 53%

Low Risk 7 47%

Convenience 0 0

Any other 0 0

Total 15 100%

Chart 4.13

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INTERPRETATION:

The above chart states that 53% of the respondents opted Mutual Fund

as it gives high return and remaining 47% prefer as it has low risk.

WHY DO YOU PREFER REAL ESTATE?Table 4.14


High Liquidity 0 0

High Return 8 100%

Low Risk 0 0

Convenience 0 0

Any other 0 0

Total 8 100%

Chart 4.14

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INTERPRETATION:

From the above chart we can infer that all of them have solely agreed

that Real estate will give them high return.

WHY DO YOU PREFER GOLD/JEWELLERY?

Table 4.15


High Liquidity 0 0

High Return 3 43%

Low Risk 4 57%

Convenience 0 0

Any other 0 0

Total 7 100%

Chart 4.15

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INTERPRETATION:The above chart indicates that 43% of the respondents choose

gold/jewellery as their investment option because of high return and

remaining 57% prefer as it has low risk.

HAVE YOU INVESTED IN MUTUAL FUND?

Table 4.16

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Chart 4.16

INTERPRETATION:

80% of the respondents in share khan invested in Mutual Fund and 20% of

the respondents invested in other investment option.

Note : 10 respondents in the survey out of 50 did not prefer

Mutual Fund at all.

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Particulars (Rs.) No. of respondents PercentageYes 40 80%

No 10 20%

Total 50 100%


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WHAT IS YOUR INVESTMENT IN MUTUAL

FUND?

Table 4.17


Below Rs.10,000 13 32%

Rs.10,000-Rs.50,000 10 25%

Rs.50,000- Rs.1

Lakh

12 30%

Above Rs.1 Lakh 5 13%

Total 40 100%

Chart 4.17

INTERPRETATION:

The above graph states that 32% of the respondents invested in mutual fund

below Rs10000, 25% of the respondents invested between Rs10000 -

Rs50000, 30% of the respondents invested between Rs50000 - Rs1 lakh and

13% of the respondents invested above Rs1 lakh.

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What is your criteria for the selection of Mutual Fund

as your Investment Avenue?

Table 4.18


Low Risk 15 37%

High Return 12 30%

Experienced Investors 8 20%

Diversified

investment of the fund

5 13%

Any other 0 0

Total 40 100%

Chart 4.18

The above table shows that 37% of the respondents invested in mutual

fund because of Low Risk, 30% of the respondents are interested in

investment in order to receive high return in mutual fund, 20% of the

respondents invest by the advice of Experienced Investors, and 13% of the

respondents invest because of various other diversified investments.

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Which are the companies in which you preferred to

invest in Mutual Fund?

Table 4.19


UTI 8 20%

ICICI Prudential 4 10%

Reliance 5 13%

Kotak 4 10%

Birla Sun life 3 7%

SBI 13 33%

Franklin Templeton 3 7%

Any other 0 0Total 40 100%

Chart 4.19

INTERPRETATION:

The above chart states that 33% of the respondents selected SBI mutual

fund, 8% selected Franklin Templeton, 20% preferred UTI mutual fund,

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10% chosen ICICI Prudential, 7% preferred Birla Sun Life, 10% selected

Kotak mutual fund and 12% of the respondents chosen Reliance.

What is the holding period of your investment in

Mutual Fund?Table 4.20


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Less than a year 6 15%

1-5 years 13 33%

Above 5 years 5 12%

Depends on growth Rate 9 22%

Depends on financial status 7 18%Others 0 0

Total 40 100%

Chart 4.20

INTERPRETATION:

The above table states that 15% of the respondents says that their investing

period in mutual fund is less than a year, 33% agreed that it is for 1 5

years, 12% says that it is for above 5 years, 22% of the respondents says

that they depend on growth rate where as 18% are under opinion that they

depend on financial status.

By structure in which type of schemes did you

invested?

Table 4.21


Open Ended 29 73%

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Schemes

Close Ended

Schemes

7 17%

Interval Schemes 4 10%

Total 40 100%

Chart 4.21

INTERPRETATION:

The above chart denotes that 73% of the respondents invested in Open-

Ended schemes, 17% invested in close-ended schemes where as only 10%

says that they will invest on interval schemes.

By Investment objective in which type of schemes have

you invested?

Table 4.22


Growth schemes 15 37%

Income schemes 18 45%

Balanced schemes 7 18%

Total 40 100%

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Chart 4.22

INTERPRETATION:

The above chart shows that 45% invested in Income schemes then 37%

of the respondents invested in Growth schemes and only 18% invested on

balanced schemes.

In which type of fund you want to invest?

Table 4.23


Tax saver funds 12 30%

Index funds 19 48%Sectoral funds 9 22%

Total 40 100%

Chart 4.23

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INTERPRETATION:

The above graph shows that 30% of the respondents invest on tax saver

funds, 48% invest on index funds where as only 22% invest on sectorial

funds.

Did you repeat your Investment after your initial

investment?

Table 4.24


Yes 38 95%

No 2 5%

Total 40 100%

Chart 4.24

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INTERPRETATION:

The above graph states that 98% agrees that they have

repeated their investment after their initial investment and only 5% did not

repeated their investment.

What is the reason for not investing in Mutual Fund?

Table 4.25


High Risk 5 50%

Low Return 3 30%

Other better Investment

Avenue

2 20%

Others 0 0

Total 10 100%

Chart 4.25

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INTERPRETATION:

The above table shows that 50% of the respondents did not

invest in mutual fund due to high risk involved in it, 30% did not invest

because of low return and 20% of the respondents did not invest since they

had other better investment avenue.

FINDINGS

As per the survey it is observed:

Male invest more in Mutual Funds then Female. This may be a

natural phenomenon since female do not like to take more risk and

may not be having income levels as male.

More number of young investors are interested in investing in

mutual funds. This shows that they are aware of capital market

operation.

Maximum numbers of investors in capital markets are graduates.

Majority of the investors comprised in the survey are earning an

income below Rs 20,000 per month.

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Most of the respondents have planned their investment by the help

of their friends without any consultancy from the investment

advisors.

Most of the respondents have given very less importance to

investments in corporate securities because they perceive that lots

of risk has to be beared in it.

Majority of the respondents belong to the young category, but still

they do not prefer to take risk in their investment plan.

Out of the various investment alternatives that are available to the

investors, the main priority given by them is to a high level ofreturn for their investment. This has been observed in different

investment modes such as FD a/c , corporate securities, mutual

funds and real estate. Simultaneously it is also found that in the case

of SB a/c, the investors are very convenient. Low risk was the main

reason for the investors who opted for Gold/Jewellery.

If we look into the composition of the investments made in mutual

funds, 32% of the investors have an investment of below 10,000.

This can be attributed to the low income level of majority of the

investors.

SBI Mutual Fund emerged as the popular mutual fund among the

investors of Share Khan.

Majority of the investors have preferred open ended scheme in

terms of the structure.

On the basis of investment objective, majority of the investors

opted for income schemes as it would provide regular and steady

income.

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The investors found index funds as an attractive option for

investment.

Large numbers of respondents hold their investment within the

period of 5 years in mutual funds which may not be a wise decision.

Few respondents in Sharekhan are not interested in investing

mutual funds because they think it consists of high risk.

SUGGESTIONS

Despite of only male investor investing in capital market, even the

females should come forward to invest in capital market. The

problem of less female investor may be due to either lack of

knowledge of capital market or may be due to decrease in income

level.

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Investment in capital market should not be done only by graduates,

even other category of people based on their educational

qualification has to invest in the capital market.

Whenever investing in the mutual funds the investors should see

that their period of investment should be more than 5 years.

Whenever an investor is interested in investing he should take

proper consultancy from the advisors and then plan for investing

and not just blindly invest in any of the alternatives available for

them.

CONCLUSION

Investment avenues are in umpteen numbers in order to meet a

variety of requirements of the investors. The requirements, tastes, and

preferences the income- consumption- saving pattern, the wealth

distribution and the life style of the investors determine the investment

pattern of the investors. These requirements differ according to gender,

social class, income, age etc. Therefore the companys design their products

keeping in view all the factors which decides the investors requirements.

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Among the investment alternatives Mutual Funds is one of best and

most preferred options. Due to its varied features it has captured the

attention of a good number of people. Mutual Funds are designed in a way

to fulfill the requirements such as low risk, high return, tax rebate, and

balanced growth. The investors can also avail the advantage of a diversified

portfolio with a minimal investment.

Surveys have revealed that only 2.3% of Indian population are

knowledged and have accessed the investment in Capital Market. The

reasons could be summed up as the less risk bearing capacity of the people

and the recent scams which are taking place in the corporate. It clearly

indicates that there is a huge market for capital market investment and

related products in India. In this regard Mutual funds seem to be a safer,

income generating and growth oriented product which can tackle the

problem of high risk associated with investment. The Mutual Fund

companies must also try to be as transparent as possible to gain investors

confidence. The first and foremost task lies in educating the people about

unnoticed facts of capital market investment.

Project Report- Muthulaxmi (8)

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