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INTRODUCTION OF MUTUAL FUNDS
Mutual funds have become a very popular way to take some of the risk out of investing in individual
stocks by investors. Mutual funds are a collection of stocks selected by mutual fund seller and sold
to investors as shares in a fund. There are several types of funds that you can invest in. Some of the
more popular types are technology funds, growth funds, security funds, and income funds. Mutual
funds are very popular because they allow you to invest in a numbers of stocks therefore greatly
reducing the risks associated with putting you money in an individual stock. Mutual funds have
become one of the most attractive ways for the average person to invest their money. A mutual
fund pools resources from thousands of investors and then diversifies its investment into many
different holdings such as stocks, bonds, or government securities in order to provide high relative
safety and returns. Mutual Funds now represents perhaps the most appropriate opportunity for
most investors. It is no wonder that birthplace of mutual funds - the U.S.A.- the fund industry has
already overtaken the banking industry. The Indian industry has already started opening up many of
the exciting investment opportunities to Indian investors. Though not insured like banks, mutual
funds generally provide more return than the current one to two percent obtainable through banks
while still being one of the safest ways to grow your money. There are an endless variety of mutual
fund investment choices depending on the degree of risk you feel comfortable with. Mutual Funds
have emerged as professional intermediaries. Besides providing the expertise in stock market
investing, these funds allow investing in small amounts and yet holding a diversified portfolio to a
limit.
HISTORY OF THE INDIAN 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 and started its operations in 1964 with the issue of units under the scheme US-64. 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 NationalBank 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 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 LTI 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 Fourth Phase - since February 2003
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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 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 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. As at the end of October 31, 2003, there were 31 funds, which manage
assets of Rs. 126726 crores under 386 schemes. Erstwhile UTI was bifurcated into UTI Mutual Fund
and the Specified Undertaking of the Unit Trust of India effective from February 2003. The Assets
under management of the Specified Undertaking of the Unit Trust of India has therefore been
excluded from the total assets of the industry as a whole from February 2003 onwards. Currently
Public Sector Banks like SBI, Canara Bank, Bank of India, institutions like IDBI, GIC, LIC Foreign
Institutions like Alliance, Morgan Stanley, Templeton and Private financial companies like HDFC,
Prudential ICICI, DSP Merrill Lynch, Sundaram, Kotak Mahindra etc. have floated their own mutual
funds.
WHAT IS MUTUAL FUND? A Mutual Fund is a vehicle for investing in stocks and bonds. It is not an
alternative investment option to stocks and bonds; rather it pools the money of several investors
and invests this in stocks, bonds, money market instruments and other types of securities. Buying a
mutual fund is like buying a small slice of a big pizza. The owner of a mutual fund unit gets a
proportional share of the fund's gains, losses, income and expenses. A Mutual Fund is a body
corporate registered with the Securities and Exchange Board of India (SEBI), that pools up the money
from individual/ corporate investors and invests the same on behalf of the investors /unit holders, in
equity shares, Government securities, Bonds, Call money markets etc., and distributes the profits. In
other words, a mutual fund allows an investor to indirectly take a position in a basket of assets. A
mutual fund pools together sums from individual investors and invests it in various financial
instruments. Each mutual fund has its own investment objective. Mutual funds have become one of
the most attractive ways for the average person to invest their money. A mutual fund poolsresources from thousand of investors and then diversifies its investment into many different
holdings such as stock, bonds, and securities in order to provide highly relative safety and returns.
Each Mutual Fund with different type of schemes is managed by respective Asset Management
Company (AMC). An investor can invest his money in one or more schemes of Mutual Fund
according to his choice and becomes the unit holder of the scheme. The invested money in a
particular scheme of a Mutual Fund is then invested by fund manager in different types of suitable
stock and securities, bonds and money market instruments. Each Mutual Fund is managed by
qualified professional man, who use this money to create a portfolio which includes stock and
shares, bonds, gilt, money-market instruments or combination of all.
DISTINGUISHING CHARACTERISTICS OF MUTUAL FUND
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The traditional, distinguishing characteristics of the mutual fund may include the following:
#> Investors purchase mutual fund shares from the fund itself (or through a broker for the fund)
instead of from other investors on a secondary market
#> The price that investors pay for mutual fund shares is the fund's per share net asset value (NAV)plus any shareholder fees that the fund imposes at the time of purchase (such as sales loads).
#> Mutual fund shares are "redeemable," meaning investors can sell their shares back to the fund
(or to a broker acting for the fund).
#> Mutual funds generally create and sell new shares to accommodate new investors. In other
words, they sell their shares on a continuous basis, although some funds stop selling when, for
example, they become too large.
#> The investment portfolios of mutual funds typically are managed by separate entities known as
"investment advisers" that are registered with the SEBI. MAJOR RIGHTS AS A UNIT HOLDER IN A
MUTUAL FUND Some important rights are mentioned below:
Unit holders have a proportionate right in the beneficial ownership of the assets of the scheme
and to the dividend declared.
They are entitled toreceive dividend warrants within 42 days of the date of declaration of the
dividend.
They are entitled to receive redemption cheques within 10 working days from the date of
redemption.
75% of the unit holders with the prior approval of SEBI can terminate AMC of the fund. 75% of
the unit holders can pass a resolution to wind-up the scheme
REGULATORY BODY FOR MUTUAL FUNDS Securities Exchange Board of India (SEBI) is the regulatory
body for all the mutual funds mentioned above. All the mutual funds must get registered with SEBl.
The only exception is the UTI, since it is a corporation formed under a separate Act of Parliament.
Broad Guidelines Issued by SEBI for a MF: - SEBI is the regulatory authority of Mutual Funds. SEBl has
the following broad guidelines pertaining to mutual funds:
Mutual Funds should be formed as a Trust under Indian Trust Act and should be operated by AssetManagement Companies (AMCs)
. Mutual Funds need to set up a Board of Trustees and Trustee Companies. They should also have
their Board of Directors.
The net worth of the AMCs should be at least Rs.5 crore.
AMCs and Trustees of a Mutual Fund should be two separate and distinct legal entities
The AMC or any of its companies cannot act as managers for any other fund
AMCs have to get the approval of SEBI for its Articles and Memorandum of Association
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All Mutual Funds schemes should be registered with SEBI. Mutual Funds should distribute
minimum of 90% of their profits among the investors
There are other guidelines also that govern investment strategy, disclosure norms and advertising
code for mutual funds
ROLE OF A FUND MANAGER Fund managers are responsible for implementing a consistent
investment strategy that reflects the goals and objectives of the fund. Normally, fund managers
monitor market and economic trends and analyze securities in order to make informed investment
decisions. Thus the role of fund manager is very crucial.
ACCOUNT STATEMENT
When the units are bought or get allotted a statement will be issued mentioning the number of units
allotted/bought and redeemed by you. The recording of entries would be similar to the passbook
entries in the bank. In mutual fund terminology it is called Account Statement. After investing in a
mutual fund investor gets an account statement, which shows his holding and the price at which
bought units. The account statement is computer generated and cannot be traded or transferred.
The account statement shows the: -
S holding detail
s #> holding details
#> the number of units outstanding
#> value of the holdings All transactions relating to purchase units, redemption of units, dividend,
reinvestment, etc are shown in the account statement.
MUTUAL FUND STRUCTURE The SEBI (Mutual Funds) Regulations 1993 define a mutual fund (MF) as
a fund established in the form of a trust by a sponsor to raise monies by the Trustees through the
sale of units to the public under one or more schemes for investing in securities in accordance with
these regulations. These regulations have since been replaced by the SEBI (Mutual Funds)
Regulations, 1996. The structure indicated by the new regulations is indicated as under.
THE SPONSOR: The Sponsor is the creator of the fund, establishes the mutual fund and gets it
registered with SEBI and will typically hold a number of voting shares (perhaps 100) in the fund, but
these are not entitled to any distributions or share in the equity. All of the equity belongs to theinvestors, typically in the form of non-voting "preferred redeemable shares" The voting shares
generally control management of the fund, apart from limited major decisions. The sponsor is the
Settlor of the Trust that holds Trust property on behalf of investors who are the beneficiaries of the
Trust. The sponsor is also required to contribute at least 40% of the capital of the asset management
company, which is formed for managing the assets of the Trust. THE BOARD OF TRUSTEES: The
mutual fund needs to be constituted in the form of a trust and the instrument of the trust should be
in the form of a deed registered under the provisions of the Indian Registration Act, 1908. The
supervisory role is fulfilled by the Board of Trustees of the Investment Company. The board of
trustees manages the MF and the sponsor executes the trust deeds in favour of the trustees. It is the
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job of the MF trustees to see that schemes floated and managed by the AMC appointed by the
trustees are in accordance with the trust deed and SEBI guidelines.
THE ASSET MANAGEMENT COMPANY (AMC): The company that manages a mutual fund is called an
AMC. For all practical purposes, it is an organized form of a "money portfolio manager". An AMC
may have several mutual fund schemes with similar or varied investment objectives.
The AMC hires a professional money manager, who buys and sells securities in line with the fund's
stated objective.
All Asset Management Companies (AMCs) are regulated by SEBI and/or the RBI (in case the AMC is
promoted by a bank). In addition, every mutual fund has a board of directors that represents the
unit holders' interests in the mutual fund.
This entity that undertakes the designing and marketing of schemes, raises money from the public
under the schemes and manages the money on behalf of its owners. To segregate the collected
funds from this entity's own funds, the corpus is placed in a legal vehicle. It is the character of this
legal vehicle that determines the character of the Fund itself. Irrespective of the nature of the
structure, what is more fundamental is that in view of the fiduciary role of the AMC or the fund
manager towards the public, there is a need for supervision of the activities of the AMC or fund
manager by a separate body.
The assets of the Trust comprise of properties of the schemes, which are floated by the asset
management company with the approval of the Trustees Schemes may have different characteristics
- they may be open or closed ended or may have a particular investment focus or portfolio
composition.
Finally, the safe custody of assets of the Trust is entrusted to one or more custodians. THE
CUSTODIAN: Custodian holds the fund's cash and investment assets. Commonly, parts of the fund's
assets are held by one or more brokers who execute trades on behalf of the fund Custodial Fees can
also be a fixed fee or a percentage of NAV. Where a broker acts as de facto custodian, it usually
charges on a transactional basis.
Apart from these four there is registrar or a transfer agent who acts as a key party
THE ADMINISTRATOR: Administrator acts as registrar and transfer agent, keeps the books and
records of the fund, and calculates the NAV. Depending on the complexity of the fund, theadministrator's fees could be as little as a few thousand dollars a year or as much as 0.5 to 0.65 % of
the NAV per annum. Sometimes the administrator's fees are included within the management fee. In
certain situations, the administrator subcontracts a part of the work, particularly the NAV
certification, to the investment manager
REGULATIONS OF MUTUAL FUNDS IN INDIA In India SEBI and RBI act as regulators of mutual fund.
#> SEBI (Mutual Fund) REGULATIONS,1996 The provisions of this regulations pertaining to AMC are:
All the schemes to be launched by the AMC need to be approved by the trustees and copies of
offer document of such schemes are to be filed with SEBI.
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The offer document shall contain adequate disclosure to enables the investor to make informed
decision.
Advertisement in respect of schemes should be in conformity with the SEBI prescribed
advertisement code, and discloses the method and periodicity of the valuation of investment sales
and repurchase in addition to the investment objectives.
The listing of close ended schemes is mandatory and every close ended scheme should be listed on
a recognized stock exchange with in six months from the closure of subscription. However, listing is
not mandatory in case the scheme provides for monthly income or caters to the special classes of
persons like senior citizen, women, children, and physically handicapped. If the scheme discloses
detail of repurchase in the offer document: if the schemes opens for repurchase with in six months
of closure of subscription.
Units of a close ended scheme can be opened for sale or redemption at a predetermined fixed
interval if the minimum and maximum amount of sale, redemption, and periodicity is disclosed inthe offer document.
Units of a close ended scheme can also be converted into an open ended scheme with the consent
of majority of the unit holder and disclosure is made in the offer document about the option and
period of conversion.
Units of a close ended scheme may be rolled over by passing resolution by a majority of the
shareholders.
No scheme other than unit linked schemes can be opened for more than 45 days.
The AMC must specify in the offer document about the minimum subscription and the extent of
over subscription, which is intended to be retained. In the case of over subscription, all applicants
applying up to 500 units must be given full allotment subjected to over subscription.
The AMC must refund the application money if minimum subscription is not received and also the
excess over subscription with in the six weeks of closure of subscription.
Guaranteed returns can be provided in a scheme if such returns are fully guaranteed by the AMC
or sponsor. In such cases, there should be a statement indicating the name of the person, and the
manner in which the guarantee is to be made must be stated in the offer document.
A close ended scheme shall bewound up on redemption date, unless it is rolled over, or if 75% of
the unit holders of a scheme pass a resolution of winding up of the scheme : if the trustee on
happening of any event, requires the scheme to be wound up: or if SEBI, so directed in the interest
of investors. #> Investment objectives and valuation policies :- The price at which the units may be
subscribed or sold and the price at which such units may at any time repurchase by mutual fund
shall be made available to the investor.
#> General obligation
Every asset management company for each scheme shall keep and maintain proper books ofaccount, records and document, for each scheme so as to explain its transaction and to disclose at
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any point of time the financial position of each scheme and in particular give true and fair view of
state of affairs of the fund and intimate to board the place where such books of account, record, and
document are maintained.
The financial year for all the schemes shall end as on march 31 of each year. Every mutual fund or
the asset management company shall prepare in respect of scheme and the fund as specific in
eleventh schedule.
Every mutual fund shall have the annual statement of account audited by an auditor who is norin
any way associated with the auditor of the asset management company.
#> Procedure in case of default On and from the date of suspension of the certificate or the approval
as the may be, the mutual fund trustees or asset management company, shall cease to carry on any
activity as a mutual fund, trustee or asset management company , during the period of suspension,
and shall be subjected to the directions of the board with regard to any records, documents, or
securities that may be in its custody or control, relating to its activities as mutual fund, trustee, orasset management company
. #> SEBI Guidelines (2001-02) Relating to Mutual Fund:-
A common format is prescribed for all mutual fund schemes to disclosed their entire portfolio of
half yearly basis so that the investors can get meaningful information on the deployment of funds.
Mutual funds are also required to disclose the investment in various types of instruments and
percentage of in each script to the total NAV illiquid and non performing assets, investments in
derivatives and in ADRs and GDRs.
To enable the investor to make informed investment decision, mutual funds have been directed to
fully revise and update offer document and memorandum at least once in two years.
#> Mutual funds are also require to:- i. Bring uniformity in disclosure of various categories of
advertisements, with a view to ensuring consistency and comparability across schemes of various
mutual funds. ii. Reduce initial offer period from a maximum of 45 days to 30 days. iii. Dispatch
statement of account once the minimum subscription amount specified in offer document is
received even before the closure of the issue. iv. Invest in mortgaged backed securities of
investment grade given by credit rating agency. v. Identify and make a provision for non performing
asset (NPAs) according to criteria for classification of n NPAs and treatment of income accrued on
NPAs to disclose NPAs in half yearly portfolio reports. vi. Disclose information in a revised format on
unit capital, reserves, performance in terms of dividend and rise/fall in NAV during the half year
period annualized yield over the last 1, 3, 5 years in addition to percentage of management fee,
percentage of recurring expenses to net asset, investment made in associate companies, payment
made to associate companies, payment made to associate companies for their services, and detail of
large holding, since their operation. vii. Declare their NAVs and sale/repurchase prices of all schemes
updated on regular basis on the AMFI website by 8.00 PM and declare NAVs of their close ended
schemes on every Wednesday.
The format for unaudited half yearly result for the mutual funds has been revised by SEBI. These
results are to be published before the expiry of one month from the close of each half-year as
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against two month period provided earlier. These results shall also be put in their websites by
mutual fond.
All the schemes by mutual fund shall be launched with in six months from the date of the letter
containing observation from SEBI on the scheme offer document. Otherwise, a fresh offer document
along with filing fee shall be filled with SEBI.
Mutual funds are required to disclose large unit-holding in the scheme, which are over 25% of the
NAV.
#> RBI as supervisor of bank owned Mutual
The first non-UTI mutual funds were started by public sector banks. Banks come under the
regulatory jurisdiction of RBI. So Bank owned mutual funds are regulated by RBI, but it has been
clarified that all the mutual funds, being primarily capital market players come under the regulatory
framework of SEBI. Thus, the bank owned fund continue to be under the joint supervision of both
RBI and SEBI. It is generally understood that all market related and investor related activities of the
fund are to be supervised by SEBI, while any issue concerning the ownership of the AMC by bank fall
under the regulatory ambit of RBI. But RBI on bank fund should not conflict with SEBI guidelines. #>
RBI as supervisor of money market mutual funds RBI is the only Government agency that is charged
with the sole responsibility of overall entities that operates in money market. So money market
mutual funds were regulated by RBI guidelines till 23.11.1995. Recently it has been decided that
money market mutual funds of registered mutual fund will be regulated by SEBI through the same
guidelines issued for other mutual funds, i.e. SEBI (MF) regulations, 1996. However RBI does retain
the right to decide whether mutual funds will be allowed to access inter-call money market.
Accordingly, RBI has placed certain restrictions through latest credit policy, with the intention ofmoving toward a pure inter bank money market
. CALCULATION OF NAV Net asset value on a particular date reflects the realizable value of a mutual
fund's portfolio in per share or per unit terms. It is the worth of an investment with an open-end
mutual fund quoted in terms of its net asset value. That is also the amount an investor can expect if
he or she were to sell his or her units back to the issuer. Daily closing prices of all securities held by
the fund are used as a starting point. Subtract this amount for liabilities (including expenses and
commissions). And divide the result by the number of outstanding shares. If the realizable worth of
the portfolio is Rs 12 million, divided it by shares outstanding, let's say one million units, then the
NAV is Rs 12 (12/1). If a fund's NAV a year ago was Rs 10.5 and is currently Rs 12, then your pre-taxreturn is 14.28 percent((12-10.5)/(10.5)*100). An NAV signifies nothing more than the current worth
of a portfolio. The NAV of a fund only starts to make sense when compared to a benchmark index.
First, it tells you the extent to which the securities that comprise the fund's portfolio have
outperformed or under performed the index. Second, the use of certain statistical measures can also
tell you whether a fund was able to derive above-average, risk-returned schemes.
Having said this, a fund's historical NAV performance is not the best indicator of its future
performance. For equity funds, this NAV changes almost everyday with fluctuations in stock prices.
While the NAV of a fixed-income fund is driven more by changes in rate of interest. On its own, a
rising NAV only means that assets, which form a part of the fund's portfolio, are rising and vice-versa.
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TYPES OF MUTUAL FUNDS Mutual fund schemes may be classified on the basis of its structure and
its investment objective.
ON THE BASIS OF STRUCTURE; On the basis of structure mutual fund can be either open-ended or
close-ended. Most mutual funds are open-end funds, which means the fund sells and redeems its
shares. As more shares are sold, the fund grows. Sometimes open-end funds are closed to new
investors when the funds become too large to be managed effectively-though current shareholders
can continue to invest money. When a fund is closed this way, the investment company offering the
fund often creates a similar fund to capitalize on investor interest. Closed-end fund are traded on
the major exchanges, as stocks are. There are a fixed number of shares available because a closed-
end fund raises its money all at once and does not buy back shares investors want to sell. Closed-end
fund shares often trade at a discount, or less than their net asset value, but you may pay a premium,
or more than the NAV, if the fund is in demand. Their prices change constantly throughout the
trading day, unlike open-end funds whose prices are set only once, at the end of the day.
DIFFERENCE BETWEEN THE TWO
The difference between the two is in the way each operates after the initial public offering. A close-
ended scheme operates like any other public entity whose shares are traded on the stock market.
Thus, to buy or sell the shares of a close-ended scheme, you have to transact on the BSE or on the
NSE. That's why the market price of its shares is also determined by > supply and demand for its
shares (apart from quality and performance of its portfolio). On the contrary, open-ended funds
continue to price, sell and repurchase shares after the initial offer on the basis of the NAV. The
mutual fund is ready to sell additional shares of the fund at the NAV (at par or adjusted for
expenses), or buy back (redeem) shares of the fund at the NAV (at par or adjusted for expenses).
That's why the unit capital of open-ended funds can fluctuate on daily basis. But a close-ended fund
may or may not offer more shares after its listing. It may or may not also repurchase its shares. That
is up to the issuing company to decide.
So we can say that in an open-ended mutual fund there are no limits on the total size of the corpus.
Investors are permitted to enter and exit the open-ended mutual fund at any point of time at a price
that is linked to the net asset value (NAV). In case of closed-ended funds, the total size of the corpus
is limited by the size of the initial offer. OTHER SCHEMES
: TAX SAVING SCHEME Equity Linked Savings Schemes (ELSS): Equity Linked Saving Schemes (ELSS)
are open-ended funds investing predominantly in equity-oriented instruments. Under Section 88 ofthe Income Tax Act, 1961 investments up to Rs. 10000 in equity linked savings schemes (ELSS)
qualifies for the tax rebate of 20% or 15%. (Investors with gross total income of up to Rs.1.50 Lacs
can claim a rebate of 20% while investors with gross total income of Rs. 1.5 Lacs to Rs.5 Lacs can
claim a rebate of 15%). The funds launched under this plan are largely diversified equity funds. The
investment strategy for most of the funds is similar to investment strategy followed by the fund
under diversified equity funds.
ON THE BASIS OF INVESTMENT OBJECTIVE: When it comes to investing in mutual funds, investors
have literally thousands of choices. Before investing in any given fund, decide whether the
investment strategy and risks of the fund are a good fit for you. The first step to successful investingis figuring out financial goals and risk tolerance. Once you know what you're saving for, when you'll
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need the money, and how much risk one can tolerate, one can more easily narrow your choices.
Most mutual funds fall into one of three main categories equity funds (also called "stock" funds),
debt funds (also called "bond" funds) and balanced funds (also called "hybrid" funds). Each type has
different features and different risks and rewards. Generally, the higher the potential return, the
higher the risk of loss. The schemes or funds (often used synonymously) can be classified as:
SCHEMES
Equity Funds Debt Funds Balanced funds
#> EQUITY FUNDS: They are also known as growth funds. They focus on stocks that may not pay a
regular dividend but have potential for large capital gains. They promise pure capital appreciation
with equity shares. They buy shares in companies with high potential for growth (some of which
might not pay dividends). The NAV of such a fund will tend to be erratic, since these so-called growth
shares experience high price volatility. They also make quick profits by investing in small cap shares
and by investing in initial public offerings of small companies. However, growth strategy may differ
from one fund to another. Not all growth funds operate similarly. Some of the common equity funds
are:
#> Sector funds: The goal is once again pure capita! appreciation, but the strategy is to buy into
shares of only one industry. And not diversify like a growth fund. Such funds forgo the principle of
asset allocation for high returns. That's why they are also the riskiest.
#> Tax planning funds: Also known as equity linked savings schemes, they operate like any other
growth fund (and that's why are as risky). However, an investor in these schemes gets an income-tax
rebate of 20 per cent (for a maximum of Rs 10,000) under Section 88 of the Income Tax Act.
Essentially an incentive for the investor (who is otherwise investing in fixed-income instruments likethe Public Provident Fund primarily for saving tax on his or her annual salary or business income) a
chance to participate in capital appreciation that can be delivered by investing in equity shares.
That's also why these schemes also come with a three-year lock-in period. Also while other tax
planning schemes guarantee returns, an ELSS offers no such assurance.
#> Index fund: Their goal is to match the performance of the markets. They do not involve stock
picking by so called professional fund managers. An index fund essentially buys into the stock market
in a way determined by some market index (BSE Sensex or S&P CNX Nifty) and does almost no
further trading. Index funds are optimally diversified portfolios and only carry along with it the due
to economy-wide factors.
#> DEBT FUNDS: They aim to provide safety of principal and regular (monthly, quarterly or semi
annually) income by investing in bonds, corporate debentures and other fixed income instruments.
The AMC in this case will also be guided by ratings given to the issuer of debt by credit rating
agencies. Wherever a debt instrument is not rated, specific approval of the board of the AMC is
required. Since most of corporate debt is illiquid, the fund tries to provide liquidity by investing in
debt of varying maturity. Some of the common debt funds are: #> Money market funds: Also known
as liquid plans, these funds are a play on volatility in interest rates. Most of their investment is in
fixed-income instruments with maturity period of less than a year. Since they accept money even for
a few days, they are best used to park short-term money, which otherwise earns a lower return in asavings bank account. #> Gilt funds: They are aimed at generating returns commensurate with zero
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credit risk, which is by investing securities created and issued by the central and/or the state
government securities and/or other instruments permitted by the Reserve Bank of India. Since they
ensure zero risk, instant liquidity, tax-free income, their return is lower than an income fund. #>
BALANCED FUNDS:
The idea is to get the best of both the world's equity shares and debt. These are also known as
hybrid funds. Investing in equities is supposed to bring home capital appreciation, while that in fixed
income is to impart stability and assure income for distribution. The proportion of the two asset
classes depends on the fund managers' preference for risk against return. But because the
investments are diversified, investors reduce their market risk. Normally about 50 to 65 per cent of a
portfolio's assets are invested in equity shares.
TYPES OF LOADS
The AMC that manages your mutual fund has to bear a number of expenses. So it recovers part of
these expenses from its investors, for whom it is doing the favour of managing funds. It is brokeninto two parts: annual management fee (up to 1.25 per cent for funds less than Rs 1 billion and one
per cent for funds above Rs. 1 billion) and entry & exit loads.
ENTRY LOAD: Loads normally apply to only open-ended schemes. An entry load is also called the
sales load. which is mainly to help the AMC recover expenses relating to sales literature, distribution,
advertising and agent/broker commissions. The price at which an investor buys into the fund is a
function of both the NAV and sales load. An entry load is an additional cost that an investor pays at
the point of entry. Assume that your proposed investment is Rs. 10, OOO/-. Also assume that the
current NAV of the fund is Rs. 12.00 and that the entry load is Rs.0.50. Then you will receive
10000/12.50 = 800 units. The entry load could be different for each scheme; it would also depend onthe amount of investment and the time period of investment.
EXIT LOAD: On the other hand, exit load (if you withdraw within a specified period) is charged while
redeeming your units. The latter is for more logical reasons, especially with income or money market
funds, where a quick withdrawal by too many investors can put pressure on the fund's asset
maturity profile. So to ensure that longer-term investors are not penalized, short-term investors are
charged an exit load. An exit load is levy that an investor pays at the point of exit. This is levied to
dissuade investors from exiting the fund. Assume that the current NAV of the fund is Rs. 12.00 and
that the exit load is Rs.0.50. Now if you sell 800 units then you stand to receive 800X11.5 = Rs. 9200.
The exit load could be different for each scheme. It would also depend on the amount of investmentand the time period of investment.
VARIOUS PLANS OF MUTUAL FUNDS That depends on the strategy of the concerned scheme. But
generally there are 3 broad categories that any Mutual Fund scheme offers: - #> A Dividend Plan
entails a regular payment of dividend to the investors.
#> A Reinvestment Plan is a plan where these dividends are reinvested in the scheme itself.
#> A Growth Plan is one where no dividends are declared and the investor only gains through capital
appreciation in the NAV of the fund. The term 'growth' is often used in a very generic sense to
denote every equity mutual fund. Also 'growth' in fixed income funds, comes from reinvesting
dividends. That's why in such fixed income funds, investors have an option, and they can choose
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either growth through reinvestment of dividends, or regular income by ticking on the income option.
HOW TO CHOOSE A PLAN It depends on investment object of the investor, which again depends on
his income, age, financial responsibilities, risk taking capacity and tax status. For example a retired
government employee is most likely to opt for monthly income plan while a high-income youngster
is most likely to opt for growth plan. SYSTEMATIC INVESTMENT PLAN Besides these three plans
there is one another plan whish is becoming popular that is systematic investment plan. A
systematic investment plan is one where an investor contributes a fixed amount every month and at
the prevailing NAV the units are credited to his account. Today many funds are offering this facility.
A systematic investment plan (SIP) offers 2 major benefits to an investor: #> It avoids lump sum
investment at one point of time #> In a scenario of falling prices, it reduces your overall cost of
acquisition by a process of rupee-cost averaging. This means that at lower prices you end up getting
more units for the same investment.
HOW MUTUAL FUND WORKS
For retail investor who does not have the time and expertise to analyze and invest in stocks and
bonds, mutual funds offer a viable investment alternative. One can purchase shares in some mutual
funds by contacting the fund directly or other mutual fund shares are sold mainly through brokers,
banks, financial planners, or insurance agents. All mutual funds will redeem (buy back) the shares on
any business day and must send the payment within seven days. One can invest by approaching a
registered broker of Mutual funds or the respective offices of the Mutual funds in that particular
town/city. An application form has to be filled up giving all the particulars along with the cheque or
Demand Draft for the amount to be invested.
The mutual fund issues shares of stock and bonds (just like any other corporation) to investors in
exchange for cash. It is interesting to note that funds do not issue a pre-determined amount of
stock, as do most corporations; new shares are issued as each new investment is made. Investors
thus become part owners of the fund itself, and thereby the assets of the fund. The fund, in turn,
uses investors' cash to purchase securities, such as stocks and bonds. The primary assets of a fund
are the securities it invests in (other assets, such as equipment, are a relatively small part of the total
assets of a fund). Following are the various descriptions needed for the working of mutual fund: How
mutual funds work Buy shares Receive incc-me in a fund Invest in securities Returns increase fund
value
STOCKS BONDS
PRICING AND VALUATION DESCRIPTION. The value of the shares of an open-end mutual fund is
readily determined Each day, the accounting staff of a fund simply adds up the value of all the
securities in the portfolio, adds in other assets, deducts liabilities, and comes up with a net overall
value. It is then a simple matter to divide the net assets by the number of shares outstanding. This is
called the net asset value, and is the price at which investors buy and sell shares from the fund. The
net asset value is listed in the financial section of many major newspapers.' LOAD AND NO-LOAD
FUNDS DESCRIPTION
A load, or loaded, fund is one that has a sales charge. A no-load fund has no sales charge. As noted
above, not all funds have sales charges. Those that do simply add them on to the net asset value ofthe fund, thus coming up with a new, higher offering price per share It is important to note that the
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underlying value of the fund's shares do not change, and further, that an investor selling shares will
still receive only the net asset value A no-load fund is simpler. The net asset value is used for both
the purchase price and the selling price. Therefore, the two prices are always identical. In the case of
a load fund, the broker usually takes care of the details for you. In the case of a no-load fund,
investors usually deal directly with the fund in question.
BUYING AND SELLING FUND SHARES DESCRIPTION. When you buy shares, you pay the current NAV
per share plus any fee the fund assesses at the time of purchase, such as a purchase sales load or
other type of purchase fee. When you sell your shares, the fund will pay you the NAV minus any fee
the fund assesses at the time of redemption, such as a deferred (or back-end) sales load or
redemption fee. A fund's NAV goes up or down daily as its holdings change in value.
FUND OBJECTIVES AND PROSPECTUS DESCRIPTION A fund's objective, described in the prospectus,
gives broad indications of the types of investments a fund may make. The most important aspect of
a fund is its investment objective. The fund's objective tells investors the goals the fund seeks to
achieve, and a good deal about how it intends to achieve them. A balanced fund will generally hold
stocks and bonds. A fund seeking growth fund will utilize stocks. A fund seeking income with little or
no concern for growth will generally hold bonds. The objective of a fund is so fundamental that it
generally determines the category into which a fund will be assigned. Listed below are some
examples of major investment objective categories: - > Preservation of Capital & LiquidityAchieved
by investing in very short-term bonds > IncomeAchieved by investing in bonds > Balanced
Achieved by investing in bonds and stocks > GrowthAchieved by investing in stocks The
prospectus: The Securities and Exchange Commission (SEC) requires all mutual funds to publish a
plain English prospectus and issue a copy to all potential investors either before they buy or along
with the confirmation of their initial investment. The prospectus must explain the programs and
policies the management follows to achieve the fund's investment goals. The prospectus includes:
#> Statement of objective
#> Investor programs
#> Fund fees and expenses
#> Fund performance history
#> Results of investment
#> How to purchase and redeem shares
#> Shareholder services
HOW MUTUAL FUNDS CAN EARN MONEY
A mutual fund can earn money in three different ways.
Dividend Payments A fund may earn income in the form of dividends and interest on the
securities in its portfolio. The fund then pays its shareholders nearly all of the income (minus
disclosed expenses) it has earned in the form of dividends. Capital Gains Distributions They are
paid from any profits the fund realizes from selling investments. The price of the securities a fund
owns may , increase. When a fund sells a security that has increased in price, the fund has a capital
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gain. At the end of the year, most funds distribute these capital gains DISTRIBUTIONS (minus any
capital losses) to investors. Increased NAV If the market value of a fund's portfolio increases after
deduction of expenses and liabilities, then the value (NAV) of the fund and its shares increases. The
higher NAV reflects the higher value of your investment. With respect to dividend payments and
capital gains distributions, funds usually will give a choice: the fund can send a check or other form
of payment, or the dividends or distributions reinvested in the fund to buy more shares (often
without paying an additional sales load. A fund may sell investments for a number of reasons: > To
capitalize on an investment's increased value
> To achieve performance targets
> To free up money to make new investments
> To prevent additional losses in a security that is losing value
> To have enough cash to redeem shares its investors want to sell back to the fund
INFORMATION NEEDS TO EVALUATE MUTUAL FUNDS
There are three key pieces of information that help to evaluate a mutual fund.
PAST PERFORMANCE: It measures the fund's historical returns, whether the returns are
consistent, and how they stack up against the returns of comparable funds. While there's no
guarantee that a fund's future performance will equal its current or past record.
RISK: It measures how likely you are to earn money or lose it. Risk isn't bad if you're investing for
the long term and you can tolerate some setbacks without selling in a panic if the fund drops in
value. But if you're investing to meet short-term goals or preserve capital, you may want a fund that
poses less risk to principal.
COST: It measures how much you pay in sales charges or commissions, fees, and annual asset-
based expenses. Since these costs directly affect your return, you may want to compare the expense
ratios and sales charges of various funds as part of your evaluation process. Higher fees may
correlate with higher risk if the fund manager takes added risk to help reduce the impact of fees on
return.
FACTORS TO CONSIDER
Thinking about long-term investment strategies and tolerance for risk can help to decide what type
of fund is best suited. But one should also consider the effect that fees and taxes will have on the
returns over time.
DEGREES OF RISK Mutual fund investments are not totally risk free. In fact, investing in mutual
funds contains the same risk as investing in the markets, the only difference being that due to
professional management of funds the controllable risks are substantially reduced. A very important
risk involved in mutual fund investments is the market risk. When the market is in doldrums, most of
the equity funds will also experience a downturn. However, the company specific risks are largely
eliminated due to professional fund management All funds carry some level of risk. One can losesome or all of the money invests principal -because the securities held by a fund go up and down in
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value. Dividend or interest payments may also fluctuate as market conditions change. Before
investing, be sure to read a fund's prospectus and shareholder reports to learn about its investment
strategy and the potential risks. Funds with higher rates of return may take risks that are beyond
your comfort level and are inconsistent with your financial goals. Financial theory-states that an
investor can reduce his total risk by holding a portfolio of assets instead of only one asset. This is
because by holding all your money in just one asset, the entire fortunes of your portfolio depend on
this one asset. By creating a portfolio of a variety of assets, this risk is substantially reduced.
HOW SAFE ARE MUTUAL FUNDS:
As financial intermediaries, they do not come without risk. Also when defined in terms of losing
money, the risk in mutual funds is not dramatically different than that present in other financial
instruments. Still, they are relatively safer and offer a more convenient way on investing. With
mutual funds you can control risk by choosing a fund that given your risk profile., you believe is the
best. On the other hand, picking stocks individually that will both meet your objectives and match
your profile can be tough.
A mutual fund portfolio is also easier to monitor than individual shares. They also come without
systemic risks (like bad deliveries). They offer quick liquidity Most private mutual funds can be
redeemed in three to four working days, unlike a fixed deposit that is more likely to be received a
month after its maturity, or an equity share after the end of its settlement period (or depending up
on your broker). This too cuts the overall risk associated with investing, often not so visible and
hence not accounted by many investors.
TAX CONSEQUENCES
When an individual stock or bond is bought and hold, income tax has to be paid each year on the
dividends or interest received. Mutual funds are different. When you buy and hold mutual fund
shares, you will owe income tax on any ordinary dividends in the year you receive or reinvest them.
And, in addition to owing taxes on any personal capital gains when you sell your shares, you may
also have to pay taxes each year on the fund's capital gains. That's because the law requires mutual
funds to distribute capital gains to shareholders if they sell securities for a profit that can't be offset
by a loss Tax Exempt Funds If you invest in a tax-exempt fund - - such as a municipal bond fund - -
some or all of your dividends will be exempt from federal (and sometimes state and local) income
tax. But if you receive a capital gains distribution, you will likely owe taxes even if the fund has
had a negative return from the point during the year when you purchased your shares. SEC rulesrequire mutual funds to disclose in their prospectuses after-tax returns. In calculating after-tax
returns, mutual funds must use standardized formulas similar to the ones used to calculate before-
tax average annual total returns. When comparing funds, be sure to take taxes into account.
RETURNS
As per SEBI Regulations, mutual funds are not allowed to assure returns. However, funds floated by
AMCs of public sector banks and financial institutions were permitted to assure returns to the unit
holders provided the parent sponsor was willing to give an explicit guarantee to honor such a
commitment. But in general, mutual funds cannot assure fixed returns to their investors. Investors
need to be clear that mutual funds are essentially medium to long-term investments Hence, short-term abnormal profits will not be sustainable in the long run. But in the medium to long run the
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mutual funds tend to outperform most other avenues of investments at the same time avoiding the
risk of direct investment accompanied with professional fund management.
ADVANTAGES AND DISADVANTAGES
Every investment has advantages and disadvantages. But it's important to remember that featuresthat matter to one investor may not be important to you. Whether any particular feature is an
advantage for you will depend on your unique circumstances. For some investors, mutual funds
provide an attractive investment choice because they generally offer the following advantages:
Professional Management Professional money managers research, select, and monitor the
performance of the securities the fund purchases. Diversification - - Diversification is an investing
strategy that can be neatly summed up as "Don't put all your eggs in one basket." Spreading your
investments across a wide range of companies and industry sectors can help lower your risk if a
company or sector fails. Some investors find it easier to achieve diversification through ownership of
mutual funds rather than through ownership of individual stocks or bonds. Affordability - - Some
mutual funds accommodate investors who don't have a lot of money to invest by setting relatively
low amounts for initial purchases, subsequent monthly purchases or both. Liquidity & flexibility
Mutual fund investors can readily redeem their shares at the current NAV plus any fees and charges
assessed on redemption at any time Through features such as regular investment plans, regular
withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds
according to your needs and convenience. Easy entry and exit -- Filling a mutual fund application or a
redemption form is all that it takes while entering or exiting a mutual fund. But with equity shares,
you need to have an account with a stockbroker (for buying & selling) and another with a depository
participant. Some investors may find this cumbersome. Tax benefitsSection 88 for Equity Linked
Saving Schemes, ability to reinvest your proceeds from capital gains into mutual funds under section
54EA & 54EB and tax-free status for equity oriented funds for three years starting from April 1, 1999
are popular benefits that investors in mutual funds can avail of. TransparencyOne get regular
information on the value of the investment in addition to disclosure on the specific investments
made by ones scheme, the proportion invested in each class of assets and the fund manager's
investment strategy and outlook. Well RegulatedAll Mutual Funds are registered with SEBI and
they function within the provisions of strict regulations designed to protect the interests of
investors. The operations of Mutual Funds are regularly monitored by SEBI.
But mutual funds also have features that some investors might view as Disadvantages, such as:
#> Costs Despite Negative Returns -- Investors must pay sales charges, annual fees, and other
expenses regardless of how the fund performs. And, depending on the timing of their investment,
investors may also have to pay taxes on any capital gains distribution they receive even if the fund
went on to perform poorly after they bought shares.
#> Lack of Control - - Investors typically cannot ascertain the exact make-up of a fund's portfolio at
any given time, nor can they directly influence which securities the fund manager buys and sells or
the timing of those trades.
#> Price Uncertainty - - With an individual stock, you can obtain real-time (or close to real time)
pricing information with relative ease by checking financial websites or by calling your broker. Youcan also monitor how a stock's price changes from hour to hour or even second to second. By
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contrast, with a mutual fund, the price at which you purchase or redeem shares will typically depend
on the fund's NAV, which the fund might not calculate until many hours after you've placed your
order. In general, mutual funds must calculate their NAV at least once every business day.
OBJECTIVES OF STUDY
Following are the objectives of the study: 1
To know about investors' investment preferences.
2 To check awareness level of people about mutual funds.
3. To work out potential market for mutual funds.
4. To access the satisfaction level of mutual funds investors and to find out the reasons for
dissatisfaction
. 5. To check factors considered by investors while investing in mutual funds.
6. To work out the potential market for Mahindra & Mahindra Finsmart
RESEARCH METHODOLOGY
Research Methodology - is a way to systematically solve the research problem. The Research
Methodology includes the various methods and techniques for conducting a research Marketing
Research is the systemic design, collection, analysis and reporting of data and finding relevant
solution to a specific marketing situation or problem." D. Slesinger and M. Stephonson in the
encyclopedia of Social Sciences define research as "the manipulation of things, concepts or symbolsfor the purpose of generalizing to extend, correct or verify knowledge, whether that knowledge aids
in construction of theory or in the practice of an art." Research is, thus, an original contribution to
the existing stock of knowledge making for its advancement.
The purpose of Research is to discover answers to he questions through the application of scientific
procedures. My project had a specific framework for collecting data in an effective manner. Such
framework is called ^'Research Design".
I follow the research process consisted of following steps:
A. Defining the problems and research objectives: It is said, " a problem well defined is half solved."The first step done was to define the project under study and decided the research objective. The
project undertaken by me was- Consumer awareness about Mutual Funds The objective of my
research was to know the customer awareness about the working of Mutual funds provided by
Mahindra & Mahindra and to work out the potential market for Mahindra & Mahindra. B Developing
the research plan: The second stage of my study consisted of developing the most efficient plan for
gathering the relevant data. The method adopted by me for carrying out study was as followed: #>
Sampling Plan: Sampling can be defined as the section of some part of an aggregate or totality on
the basis of which the judgment or an inference about aggregate or totality is made The sampling
plan helps in decision making in the following areas:
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- #> Sampling units- The population that was targeted consists of businessmen, service class,
students, housewives etc.
#> Sample size- The sample size for my study was -100.
#> Sampling procedure- Random sampling method was used. C. Data Collection: Information wascollected from both Primary and Secondary data
#> Primary sources- Primary data are those, which are collected afresh and for the first time, and
thus happen to be original in character. 1 had collected Primary data by conducting surveys through
Questionnaire, which include both open-ended and close-ended questions.
#> Secondary sources- Secondary data are those which have already been collected by someone else
and which already had been passed through the statistical processes. I had collected secondary data
through Magazines, Websites, Newspapers, Books, Journals, Mahindra & Mahindra monthly
magazine etc.
D. Analysis of Data:
After collecting the data the analysis of data had been through various statistical tools and
techniques. The analysis of data required a number of closely related operations such as
establishment of categories, the application of these categories to raw data through coding,
tabulation and then drawing the statistical inferences. The unwieldy data was condensed into few
manageable groups and tables for further analysis. Thus it helped to classify the raw data into some
purposeful and usable categories.
E. Interpretations:
After analysis Interpretations were done i.e. to explain the findings on the basis of analysis
Tabulation of data was done wherein classified data were to put in the form of tables. After
tabulation the analysis work of my project was based on the computation of various statistical
formulae- Percentages, Values, Pie charts and Graphs and Bar Diagrams.
LIMITATIONS
Besides following scientific methodologies the study has come across some limitations.
These are:
1. The sample size is small as compared to the population, so it may not he the true representative.
2. Due to limited time countrywide survey was not possible. Hence only BANGALORE city has been
taken for the study.
3. Some people were reluctant to fill the questionnaire. They were not willing to disclose their
investment plans.
4. The possibility of respondents being biased cannot be ruled out.
Q1. Do you know about various financial institutions
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#> The objective of this question is to know how many people are familier with them
Responses % Age of Respondents
Yes 60.2%
No 39.8%
Table No. 4.1 Percentage of Familier people Chart No.4.1 Percentage of Respondents Interpretation:
From the above data we can conclude that 60.2% people are aware of different financial institutions
while 39.8% are unaware about it.
Q.2 Monthly income invested. The objective of this question is to know that how much of the
monthly income people invest.
Responses % Age of Respondents
LESS than Rs.5, 000 42.67%
5,000 - 10,000 30%
More than 10,000 27.33%
Table No. 4.2 Monthly income invested Chart No. 4.2 Monthly income invested Interpretation: From
the above data we can conclude that 42.67% of people invest their monthly income less than Rs.5,
000, 30% of people invest Rs.5,000-10,000% whereas 27.33% of people invest their monthly income
more than 10, 000.
Q.3 Various options for investment and savings. The objective of this question is to find out where
people generally like to invest or save.
Various Instruments % Age of Responses
Savings 42.07%
RDs 6.76%
FDs 20.59%
RBI 0.59%
Shares 4.7%
Mutual Funds 3.53%
Post Office 21.76%
Table No. 4.3 Options for investing or saving
Chart No. 4.3 Options for investing or savins Interpretation: From the data we can conclude that
42.05% people like to invest in savings account, 6.76% in RDs, 20.59% in FDs. 0.59% in RBI Bonds,
4.7% in shares. 3.53% in Mutual Funds and 21.76% in Post Office Deposits.
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Q.4 Awareness about Mutual Fund as a source of investment. The objective of this question is to
know whether people are aware about that Mutual Fund is also an alternate source of investing
their money.
Response % Age of Respondents
Yes 37%
No 63%
Table No. 4.4 Awareness about Mutual Funds
CHART NO. 4.4 Awareness about Mutual Funds Interpretation: From the above data we can
conclude that only 37 % people are aware about this fact while remaining 63% people are unaware
of this
. Q5. Percentage of investors in Mutual Funds.
Response % Age of Respondents
Yes 32.14%
No 67.86%
Table No.4.5 Percentage of investors in Mutual FUNDS
Chart No. 4.5Percentage of investors in Mutual Funds Interpretation: From the above data we can
conclude that only 32.14% people have invested their money in Mutual Funds
. Q.6 Preferable type of mutual fund for investment. The objective of this question is to find out the
type of Mutual Fund in which the people generally invest.
Responses % Age of Responses
Open ended 87%
Close ended 13%
Table No. 4.6Percentage of investors in different types
Chart No. 4.6 Percentage of investors in different types Interpretation: From the above data we can
conclude that 87% of people invest in open-ended mutual funds whereas only 13 % of people invest
in close-ended mutual funds.
Q.7 a) Various factors persuade to invest in Mutual Funds. The objective of this question is to find
out the various factors that persuade the people to invest in Mutual Funds.
Factors % Age of Respondents
Liquidity and Flexibility 32%
Tax benefits 40%
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Less investment risks 8%
Safety 12%
Fixed & Regular income 8%
Table No. 4.7a) Various factors persuading to invest
Chart No. 4.7a) Various factors persuading to invest Interpretation: From the above data we can
conclude that 32% of people are influenced by liquidity and flexibility factor, 40% by tax benefits, 8%
by less investment risk and fixed and regular income both and 12% by safety factor.
Q4.7b) Reasons of dissatisfaction. The objective of this question is to know why people are not
satisfied with their Mutual Fund investment.
Factors % Age of Respondents
Irregular income 13%
Other alternatives 19%
Poor service 6%
Risks 49%
Any other reason 13%
Table No. 4.7b) Reasons of dissatisfaction
Chart No. 4.7b) Reasons of Interpretation:
From the above data we can conclude that 49% of people are not satisfied with their investment in
Mutual Funds because of risk involved. 19% because of other alternatives available, 6% because of
poor service and 13% because of irregular income and other reasons.
Q.8 Awareness regarding advisory services of Mahindra & Mahindra. The objective of this question is
to know whether people are aware that Mahindra & Mahindra acts as an advisory agent not only for
one particular mutual funds but also for other Mutual funds of various banks and institutions.
Responses % Age of Respondents
Yes 26.66%
No 73.34%
Table No. 4.8 Awareness regarding advisory services of Mahindra & Mahindra.
Chart No. 4.8 Awareness regarding advisory services of bank Interpretation: From the above data
we can conclude that only 26.66% people are aware of this fact of Mahindra & Mahindra while
73.34% are unaware about this.
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Q9 Interest of people about their investments taken cared by Mahindra & Mahindra. The objective
of this question is to know whether people are interested that Mahindra & Mahindra should take of
their investments.
Responses % Age of Respondents
Yes 28.9%
No 71.1%
Table No. 4.9 Investments taken cared bv Mahindra & Mahindra Yes No
Chart No. 4.9 Investments taken cared by bank
Interpretation: From the above data we can conclude that only 28.9% people are interested that
Mahindra & Mahindra should take care of their investments while 71.1% people not show any
interest. Q.10 Fear of risk involved in Mutual Funds The objective of this question is to know howrisky they find Mutual Funds are. Responses % Age of Respondents Very risky 65.33 Risky 12 Neutral
3.3 Low risk 2.6 No response 16.6 Table No. 4.10 Fear of risk Chart No. 4.10 Fear of risk
Interpretation: From the above data we can conclude that 65.33% people find Mutual funds very
risky, 12% find it risky, 3.33% find it neutral, only'2.6% find low risk while 16.6% gave no response. Q
11. Awareness regarding various tax schemes. The objective of this question is to know the
awareness level of people regarding the tax exemptions while investing. Responses % Age of
Respondents Yes 19.3% No 80.67% Visit www.mbahotspot.com for more For your personalize
project report emails us at: [email protected] or [email protected] 39
Table No. 4.11 Awareness regarding tax schemes YES NO Chart No. 4.11 Awareness regarding taxschemes Interpretation: From the above data we can conclude that only 19.3% people are aware of
the rebates in Mutual funds while 80.67% people do not have any knowledge. Q.12 Income
generated by investing in Mutual funds. The objective of this question is to know the awareness
level of people regarding income generated by investing in various mutual funds. Responses % Age
of Respondents Yes 26% No 74% Table No. 4.12 Income generation by Mutual funds Chart No.
4.12Income generation bv Mutual funds Interpretation: From the above data we can conclude that
26% people know that they can earn regular income while investing in Mutual funds.
Q.13 Satisfaction level of people. The objective of this question is to find the satisfaction level of the
people for the services provided by Mahindra & Mahindra
Responses % Age of Respondents Excellent 24 Very good 50 Good 21 Fair 5 . Table No. 4.13
Satisfaction level regarding services of Mahindra & Mahindra Chart No. 4.13 Satisfaction level
regarding services of Mahindra & Mahindra Interpretation: from the above data we can conclude
that half of the people i.e. 50% analyzed find the services of the Mahindra & Mahindra very good,
24% find it excellent, 21% find it good whereas 5% people are also their who are not satisfied with
the services of Mahindra & Mahindra
CONCLUSION From this study it is observed that few people like to invest in the Mutual Funds
because of ignorance, lack of knowledge or due to loss in faith. About half of the people invest more
than 10% of their income in various investments avenues. Saving accounts and fixed deposits are the
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most preferred investment avenues followed by the Post Office Savings Only 37.33% of the people
are aware of the fact that Mutual Fund is also a source of investing their money and only 32.14 % of
people have actually invested in Mutual Funds. Most of the people like to invest in the open-ended
type of Mutual Funds. The tax benefits and liquidity and flexibility factors involved persuade most of
the people to invest in Mutual funds along with the factors like fixed and regular income. About 65%
of the people considered that to invest in Mutual Funds is a very risky task. Only 28% of the people
know that they can avail rebate under sec. 88 and only 26% of the people have the knowledge that
they can earn regular income by investing in Mutual funds. About 27 % people know about this that
Mahindra & Mahindra acts as an advisory agent not only in Single Mutual Fund but also in other
mutual funds offered by Standard Chartered, Prudential 1C 1C I, Kotak Mahindra, Templeton Birla
etc1
From this survey it is clear that besides providing various facilities by Mahindra & Mahindra and
other private Brokers most of the people still have their faith in government banks. However most of
the people are satisfied with the working of the Mutual Funds.
SUGGESTIONS After the analysis of the consumer awareness level of the Mahindra & Mahindra
about mutual funds along with other products and services following suggestions can be given: - #>
The Mahindra & Mahindra should try to improve its market intelligence system. This would keep it
know its customer better and it will get more information about the competitors and the forces
affecting the market. #> The Mahindra & Mahindra should increase its advertising budget to get the
benefits of good advertising so that consumers should aware of their existing products and services
as well as new one. #> The Mahindra & Mahindra should increase its number of branches not only in
urban areas but also in rural and semi-urban areas for the ease of the public.
#> The customer should be fully satisfied and delighted so that they go a long way with Mahindra &
Mahindra
BIBLIOGRAPHY Bana Verma, " Mutual Fund Performance: Indian Studies", the ICFAI Journal of
Applied Finance Dian Vujovich & Michael Lippu, "Straight Talk about Mutual Fund", -McGraw Hill
Gordon & Natrajan, "Financial Markets and Services", Himalaya Publishing House, 2003 Huji Mehndi
Raja, "Mutual Fund Offer Wide Net for Investors", Safar, 2000 L. K Bansal, " Merchant Banking and
Financial Services", Unistar Books, 2003 WEBSITES: www.Mahindra &Mahindra.com www.
amfiindia.com
QUESTIONNAIRE
I NAME conducting a survey on the ' about Mutual Funds' Kindly cooperate in filling this
questionnaire. Your information will be kept confidential Q 1 Do you familier with Mahindra &
Mahindra#> a) Yes b) No Q 2 How much of your monthly income do you invest#> a) Less than
Rs.5,000 b) 5,000-10,000 c) More than Rs. 10,000 Q.3 In what type of instrument you generally
invest or save your money a) Savings e) Shares b) Recurring deposits f) Mutual Funds c) Fixed
deposits g) Post Office Deposits d) RBI Bonds h) Other (please specify).. ..
Q.4 Do you know Mutual fund is also a source of investing your money#> a)Yes b) No Q5.Have you
ever invested your money in Mutual Funds#> a) Yes b) No Q.6 In what type of Mutual Fund you have
invested#> a) Open ended b) Close ended Q.7 (a) Are you satisfied with your Mutual Fundinvestment#> If yes , then what factors persuade you to invest in mutual funds#>
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a) Liquidity and flexibility . I I d) Safety b) Fixed and regular income G e) More tax benefits c) Less
investment risks f) Any Other (specify) .. Q.7 (b) If no, then please state the reason why#> a) Low
income b) Other alternatives c) Poor service d) Risks e) Other (please specify) Q.8 Are you aware that
the advices made by Mahindra & Mahindra in Mutual Funds are made after understanding the
customer appetite of risk, return, safety and liquidity9 a) Yes b)No Q .9 Would you like that
Mahindra & Mahindra should take of your investments9 a) Yes b) No Q. 10 What do you think about
'fear of risk' in Mutual Fund a)Very Risky b) Risky c) Neutral d)Low e) Very low Q. 11 Are you aware
of the fact that you can avail rebate under sec.88 up to Rs 10, 000 by investing in Mutual Funds
under ELSS scheme9 a) Yes D b) No D Q. 12 Do you know that you can earn regular income in the
form of Dividends, MIP, Dividend Reinvestment Option by investing in various Mutual Funds
schemes#>
a) Yes D b) No D Q. 13 How do you find the services provided by the Mahindra & Mahindra#> a)
Excellent b) Very Good c) Good d) Fair e) Poor PERSONAL INFORMATION
NAME. AGE SEX.
OCCUPATION TEL. NO. . E-MAIL ID ..