A DISSERTATION ON

MUTUAL FUND AND INVESTOR’S

BEHAVIOUR
Submitted for partial fulfillment of
award of
Post Graduate Diploma in
Management
(PGDM)

By
Gunjan Tripathi
Name of Guide
Prof. Manoj Kumar Dash
 Abstract

The mutual fund industry is still in growth stage and retail

investors have not really warmed up to the idea of investing in
the stock market owing to the volatility which jeopardizes the
continuous above average returns starting from a very short
period which a retail customer wants & also there is a plethora of
choices which as many as 35 AMCs in India & every one with
almost all types of funds. In the debt market people still feel
comfortable excepting a lower post tax return from bank FDs,
post office saving & bonds rather than going for a debt fund which
indicate a higher yield.

This reports talks about

classification of mutual funds schemes according to different
objective & later on performance evaluation is done using NAV
and finally questionnaire has been prepared to know the
consumer behavior towards mutual fund.
 ACKNOWLEDGEMENT

Any accomplishment requires the effort of many people and this

work is no difference. I have been fortunate enough to get help
and guidance from many people. It is a pleasure to acknowledge
them, though it is still an inadequate appreciation for their
contribution.

I would not have completed this journey without the help,

guidance & support of certain people who acted as guides and
friends along the way. I would like to express my deepest and
sincere thanks to my faculty guide Prof. Manoj Kumar Dash for
his invaluable guidance and help. The project could not be
completed without their support and guidance.

He acted as a continuous source of inspiration and motivated me

throughout the duration of the project.

Again I sincerely thanks of him.

Submitted with regards:

GUNJAN TRIPATHI
Abstract

Acknowledgement

Table of contents
Chapter1. Introduction

• Introduction of Mutual Fund

• Objective of Study

• Scope

• Methodology

• Limitations

Chapter2. Mutual Fund Industry

• History of Mutual Fund

• Regulatory Framework

• Legal Structure

• Classification

• Types

Chapter3. Performance Measures

• Investment Plans

• Different features of various funds

• Net Asset Value

 • Performance measures of Mutual Funds

Chapter4. Investor’s point of view

• Stages of Life Cycle

• Classification of Life cycle

Chapter5. Analysis

• Analysis of Questionnaire

• Suggestions

• Conclusion

Appendices

Annexure
 MUTUAL FUNDS
Introduction:
Mutual fund is a pool of money collected from investors and is
invested according to certain investment options. A mutual fund
is a trust that pools the saving of a no. of investors who share a
common financial goal. A mutual fund is created when investors
put their money together. It is, therefore, a pool of investor’s
fund. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The
income earned through these investments and the capital
appreciations realized are shared by its unit holders in proportion
to the no. of units owned by them.
The most important characteristics of a fund are that the
contributors and the beneficiaries of the fund are the same class
of people namely the investors. The term mutual fund means the
investors contribute to the pool and also benefit from the pool.
The pool of funds held mutually by investors is the mutual fund.

A mutual fund business is to invest the funds thus collected

according to the wishes of the investors who created the pool.
Usually the investors appoint professional investment managers
create a product and offer it for investment to the investors. This
project represents a share in the pool and pre status investment
objectives.

Thus, a mutual fund is the most suitable investment for a

common man as it offers an opportunity to invest in a diversified,
professionally managed basket of securities at relatively low cost.
 ORGANIZATION OF MUTUAL FUNDS

There are many entities involved and the diagram below

illustrates the organizational set up of a mutual fund:
FEATURES THOSE INVESTORS LIKE IN MUTUAL
FUND:
If mutual funds are emerging as the favorite investment vehicle it
is because of the many advantages. They have over other forms
and avenues of investing parties for the investors who has limited
resources available in terms of capital and ability to carry out
detailed reserves and market monitoring. These are the major
advantages offered by mutual fund to all investors:

• Professional Management: Mutual Funds provide the

services of experienced and skilled professionals, backed by
a dedicated investment research team that analyses the
performance and prospects of companies and selects
suitable investments to achieve the objectives of the
scheme.
• Diversification: Mutual Funds invest in a number of

companies across a broad cross-section of industries and

sectors. This diversification reduces the risk because seldom
do all stocks decline at the same time and in the same
proportion. You achieve this diversification through a Mutual
Fund with far less money than you can do on your own.
• Convenient Administration: Investing in a Mutual Fund
reduces paperwork and helps you avoid many problems such
as bad deliveries, delayed payments and follow up with
brokers and companies. Mutual Funds save your time and
make investing easy and convenient.
• Return Potential: Over a medium to long-term, Mutual
Funds have the potential to provide a higher return as they
invest in a diversified basket of selected securities.
• Low Costs: Mutual Funds are a relatively less expensive
way to invest compared to directly investing in the capital
markets because the benefits of scale in brokerage,
custodial and other fees translate into lower costs for
investors.
• Liquidity: In open-end schemes, the investor gets the
money back promptly at net asset value related prices from
the Mutual Fund. In closed-end schemes, the units can be
sold on a stock exchange at the prevailing market price or
the investor can avail of the facility of direct repurchase at
NAV related prices by the Mutual Fund.
• Transparency: You get regular information on the value of
your investment in addition to disclosure on the specific
investments made by your scheme, the proportion invested
in each class of assets and the fund manager's investment
strategy and outlook.
• Flexibility: Through features such as regular investment
plans, regular withdrawal plans and dividend reinvestment
plans, you can systematically invest or withdraw funds
according to your needs and convenience.
• Affordability: Investors individually may lack sufficient
funds to invest in high-grade stocks. A mutual fund because
 of its large corpus allows even a small investor to take the
benefit of its investment strategy.
• Well Regulated: All Mutual Funds are registered with SEBI
and they function within the provisions of strict regulations
designed to protect the interests of investors. The operations
of Mutual Funds are regularly monitored by SEBI.

DISADVANTAGES OF MUTUAL FUNDS:

Above I have mentioned the various advantages of Mutual

Funds but it also suffers from a lot of drawbacks as the
market is volatile and it is ever affected by national as well
as international factors, these days we can see that crude oil
prices in International market has become an important
factor in determining the market movement. Here are some
disadvantages as cited by me and by survey:

• Fluctuating Returns: Mutual funds are like many other

investments without a guaranteed return: there is always
the possibility that the value of your mutual fund will
depreciate. Unlike fixed-income products, such as bonds
and Treasury bills, mutual funds experience price
 fluctuations along with the stocks that make up the fund.
When deciding on a particular fund to buy, you need to
research the risks involved - just because a professional
manager is looking after the fund, that doesn't mean the
performance will be always good.
• Diversification: Although diversification is one of the
keys to successful investing, many mutual fund investors
tend to over diversify. The idea of diversification is to
reduce the risks associated with holding a single security;
over diversification (also known as diversification) occurs
when investors acquire many funds that are highly related
and, as a result, don't get the risk reducing benefits of
diversification.
At the other extreme, just because you own mutual funds
doesn't mean you are automatically diversified. For
example, a fund that invests only in a particular industry
or region is still relatively risky. For example: Sectoral
Funds
• Cash, Cash and More Cash: As you know already,
mutual funds pool money from thousands of investors, so
everyday investors are putting money into the fund as
well as withdrawing investments. To maintain liquidity and
the capacity to accommodate withdrawals, funds typically
have to keep a large portion of their portfolios as cash.
Having ample cash is great for liquidity, but money sitting
 around as cash is not working for you and thus is not very
advantageous.
• Costs: Mutual funds provide investors with professional
management, but it comes at a cost. Funds will typically
have a range of different fees that reduce the overall
payout. In mutual funds, the fees are classified into two
categories: shareholder fees and annual operating fees.

The shareholder fees, in the forms of loads and

redemption fees are paid directly by shareholders
purchasing or selling the funds. The annual fund operating
fees are charged as an annual percentage - usually
ranging from 1-3%. These fees are assessed to mutual
fund investors regardless of the performance of the fund.
As you can imagine, in years when the fund doesn't make
money, these fees only magnify losses.

OBJECTIVE

The main objective of this study is:

1. To know various factors considered by the customers while

going to invest in the mutual fund.

2. To study the working of mutual fund.

3. To study the characteristics of mutual fund this attracts the
customers.

4. What an investors consider for safe investment and better

returns.

SCOPE

1. The project will provide us the better platform to understand

the history, growth and various aspects of mutual fund.
 2. It will also help to understand the behavior of Indian
investment towards mutual fund.

3. Also with the help of this project one can better understand
the different types of mutual funds working in India.

RESEARCH METHODOLOGY

Methodology:
Marketing research is the process of collecting and analyzing
marketing information and ultimately arrived at certain
conclusion. Management in any organization needs information
about potential marketing plans and to change the market place.
Marketing Research includes all the activities that enable an
organization to obtain the information. This research is very
important in strategy formulation and feedback of any
organizational plan.

Research Design:

1. DATA:

Primary data: Personal interaction with the respondent

through questionnaire.

Secondary data: Information through websites, books, fact

sheet of various funds etc.

2. SOURCES:

Books, Magazines, articles, Journals.

3. AREA OF STUDY:

NCR region.

4. SAMPLING PROCEDURE:

Random sampling method.

5. TOOLS & TECHNIQUES:

Simple statistical methods.

LIMITATIONS
1. This project is limited in scope as the survey is conducted
with a shortage of time constraint and also based on
secondary data.
2. The answer given by the respondents may be biased due to
several reasons or could be attachment to a particular bank.
3. Due to ignorance factor some of the respondents were not
able to give correct answer.
4. The respondent were not disclosing their exact portfolio
because they have a fear in their mind that they can come
under tax slab.
HISTORY OF MUTUAL FUNDS

• The mutual fund industry in India started in 1963 with the

formation of Unit Trust of India, at the initiative of the
Reserve Bank and the Government of India. The objective
was to attract small investors and introduce them to market
investments. Since the, the history of mutual fund in India
can be broadly divided into three distinct phases.

Phase 1- 1964-1987 (Unit Trust of India)

• An Act of Parliament established Unit Trust of India (UTI) on

1963. 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, followed by ULIP in 1971, CGGA 1986 Mastershare
1987. UTI was the only player in the market enjoying the
monopoly. At the end of 1988 UTI had Rs.6, 700 crores of
assets under management .It was huge mobilization on
funds.
• So, Unit Trust of India was the first mutual fund set up in
India in the year 1963. In early 1990s, Government allowed
public sector banks and institutions to set up mutual funds.

• In the year 1992, Securities and exchange Board of India

(SEBI) Act was passed. The objectives of SEBI are – to
protect the interest of investors in securities and to promote
the development of and to regulate the securities market.

• As far as mutual funds are concerned, SEBI formulates

policies and regulates the mutual funds to protect the
interest of the investors. SEBI notified regulations for the
mutual funds in 1993. Thereafter, mutual funds sponsored
by private sector entities were allowed to enter the capital
market. The regulations were fully revised in 1996 and have
been amended thereafter from time to time. SEBI has also
issued guidelines to the mutual funds from time to time to
protect the interests of investors.

• All mutual funds whether promoted by public sector or

private sector entities including those promoted by foreign
entities are governed by the same set of Regulations. There
is no distinction in regulatory requirements for these mutual
funds and all are subject to monitoring and inspections by
SEBI. The risks associated with the schemes launched by the
mutual funds sponsored by these entities are of similar type.
It may be mentioned here that Unit Trust of India (UTI) is not
registered with SEBI as a mutual fund (as on January 15,
 2002). The total amount mobilized was 2175 crores
and assets under management were 6700 crores.

Phase 2- 1987-1993(entry of public sector)

• 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 Can bank 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 while GIC had set up its mutual
fund in December 1990.In phase 2 also UTI was the
undisputed leader.

• At the end of 1993, the mutual fund industry had assets

under management of Rs.47,004 crores. It was the time
when mindset of the consumer changed to some extent.

Phase 3- 1993-1996(emergence of private 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.
Indian mutual fund industry also saw many joint venture of
foreign fund management companies with Indian promoters.
Competition increased the investor servicing technique.
Investor started becoming selective. 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.
 Phase 4-1996(SEBI regulation for mutual funds)

• 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. 1999 marks the beginning of
a new phase in the history of the mutual fund industry in
India, a phase of significant in terms of both amounts
mobilized from investor and asset under management.

• The size of the industry is growing rapidly, as seen by the

figure of asset under management that has gone from over
Rs. 113,005 crores, a growth of nearly 60%in just one year.
Within the growing industry, by March 2000, the relative
market shares of different players in terms of amount
mobilized and assets management having undergone a
change.
• 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 June 2007 there are 33 players in
the mutual fund industry.
 Major Mutual Fund Companies in India

ABN AMRO Mutual Fund

ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN
AMRO Trustee (India) Pvt. Ltd. as the Trustee Company. The AMC,
ABN AMRO Asset Management (India) Ltd. was incorporated on
November 4, 2003. Deutsche Bank A G is the custodian of ABN
AMRO Mutual Fund.

Bank of Baroda Mutual Fund (BOB Mutual Fund)

Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on

October 30, 1992 under the sponsorship of Bank of Baroda. BOB
Asset Management Company Limited is the AMC of BOB Mutual
Fund and was incorporated on November 5, 1992. Deutsche Bank
AG is the custodian.

HDFC Mutual Fund

HDFC Mutual Fund was setup on June 30, 2000 with two sponsors
namely

Housing Development Finance Corporation Limited and Standard

Life Investments Limited.

HSBC Mutual Fund

HSBC Mutual Fund was setup on May 27, 2002 with HSBC
Securities and Capital Markets (India) Private Limited as the
sponsor. Board of Trustees, HSBC Mutual Fund acts as the Trustee
Company of HSBC Mutual Fund.

State Bank of India Mutual Fund

State Bank of India Mutual Fund is the first Bank sponsored

Mutual Fund to launch offshore fund, the India Magnum Fund with
a corpus of Rs. 225 cr. approximately. Today it is the largest Bank
sponsored Mutual Fund in India. They have already launched 35
Schemes out of which 15 have already yielded handsome returns
to investors. State Bank of India Mutual Fund has more than Rs.
5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs
spread over 18 schemes.

Unit Trust of India Mutual Fund

UTI Asset Management Company Private Limited, established in

Jan 14, 2003, manages the UTI Mutual Fund with the support of
UTI Trustee Company Private Limited. UTI Asset Management
Company presently manages a corpus of over Rs.20000 Crore.
The sponsors of UTI Mutual Fund are Bank of Baroda (BOB),
Punjab National Bank (PNB), State Bank of India (SBI), and Life
Insurance Corporation of India (LIC). The schemes of UTI Mutual
Fund are Liquid Funds, Income Funds, Asset Management Funds,
Index Funds, Equity Funds and Balance Funds.

Franklin Templeton India Mutual Fund

The group, Franklin Templeton Investments is a California (USA)
based company with a global AUM of US$ 409.2 bn. (as of April
30, 2005). It is one of the largest financial services groups in the
world. Investors can buy or sell the Mutual Fund through their
financial advisor or through mail or through their website. They
have Open end Diversified Equity schemes, Open end Sector
Equity schemes, Open end Hybrid schemes, Open end Tax Saving
schemes, Open end Income and Liquid schemes, closed end
Income schemes and Open end Fund of Funds schemes to offer.

Association of Mutual Funds in India

(AMFI)

With the increase in mutual fund players in India, a need for

mutual fund association in India was generated to function as a
non-profit organization. Association of Mutual Funds in India
(AMFI) was incorporated on 22nd August, 1995.

AMFI is an apex body of all Asset Management Companies (AMC)

which has been registered with SEBI. Till date all the AMCs are
that have launched mutual fund schemes are its members. It
functions under the supervision and guidelines of its Board of
Directors.

Association of Mutual Funds India has brought down the Indian

Mutual Fund Industry to a professional and healthy market with
ethical lines enhancing and maintaining standards. It follows the
principle of both protecting and promoting the interests of mutual
funds as well as their unit holders.
The objectives of Association of Mutual Funds (AMFI) in
India

The Association of Mutual Funds of India works with 30 registered

AMCs of the country. It has certain defined objectives which
juxtaposes the guidelines of its Board of Directors. The objectives
are as follows: This mutual fund association of India maintains a
high professional and ethical standard in all areas of operation of
the industry.

It also recommends and promotes the top class business

practices and code of conduct which is followed by members and
related people engaged in the activities of mutual fund and asset
management.

The agencies who are by any means connected or involved in the

field of capital markets and financial services also involved in this
code of conduct of the association.

AMFI interacts with SEBI and works according to SEBIs guidelines

in the mutual fund industry.

Association of Mutual Fund of India does represent the

Government of India, the Reserve Bank of India and other related
bodies on matters relating to the Mutual Fund Industry.

It develops a team of well qualified and trained Agent distributors.

It implements a program of training and certification for all
intermediaries and other engaged in the mutual fund industry.
AMFI undertakes all India awareness programme for investors in
order to promote proper understanding of the concept and
working of mutual funds. At last but not the least association of
mutual fund of India also disseminate information’s on Mutual
Fund Industry and undertakes studies and research either directly
or in association with other bodies.

Regulatory Framework

Regulatory Jurisdictions of SEBI:

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

Regulatory Jurisdiction of RBI:

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

Role of Ministry of Finance in Mutual Fund:

The finance ministry is the supervisor of both RBI and SEBI. The ministry of
finance is also the appellate authority under SEBI Regulation. Aggrieved parties
can make appeal to the Ministry of Finance on the SEBI ruling relating the Mutual
Fund.

Role of Companies Act in Mutual Fund:

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

Role of Stock Exchange:

If a mutual fund is listed its scheme on stock exchange such listing are subject to
the listing regulation of Stock Exchange. Mutual Funds have to sign the listing
agreement and abide by its provisions which primarily deal with the periodic
notification and disclosure of information that may impart the trading of listed
units.
 Legal Structure

Mutual Fund has a unique structure not shared with other entities such as
companies or the firms. It is important for the employees and agents to be aware of
the special nature of the structure because it determines the rights and
responsibilities of the fund’s constitutes viz. sponsor trustee, custodian, transfer
agents and of course the AMC. The legal structure also drives the inter relationship
between these constituents.

Like other countries India has a legal framework within which Mutual Funds must
be constituted along one unique structure as unit trust. A mutual fund in India is
allowed to issue open ended and a close ended under a common legal structure.
Therefore, a mutual fund may have several different schemes under it at any point
of time.

THE FUND SPONSOR: Sponsor is defined by the SEBI regulation as any

person who acting alone or in combination with another body corporate establishes
a mutual fund. The sponsor of a fund is taken as he gets the fund registered with
the SEBI.
The sponsor will form a trust and appoints the Board of trustee. The sponsor will
also generally appoint the AMC as the fund managers. The sponsor, either directly
or acting through the trustee will also appoints a custodian to hold the fund asset.
All these appointments are made in accordance with the guidelines of SEBI.

As per the existing SEBI regulations for a person to quantify as the sponsor he
must contribute at least 40% of the net worth of the AMC and possess a second
final track over a period of 5 years prior to registration.

MUTUAL FUND AS A TRUST: A mutual fund is constituted in form of a public

trust created under the INDIA TRUST ACT, 1882. The fund sponsor act as the
settlers of the trust contributing to its initial capital and appoints a Trustee to hold
the asset of the trust for the benefits of the unit holders who are the beneficiaries of
the trust. The fund then invites investors to contribute their money in a common
pool by subscribing to units issued by various schemes established by the trust unit
being the evidence of their beneficial interest in the fund.

TRUSTEE: The trust – the mutual fund may be managed by a board of trustee – a
body of individuals or a trust company- a corporate body. Most of the funds in
India are managed by the board of trustee while the board is governed by the
provisions of the Indian Trust Act where the trustee is a corporate body, it would
also be required to comply the provisions of the Companies Act 1956 the board as
an independent body act as the protector of the interest of the unit holders. The
trustees do not directly manage the portfolio of securities. For this specialist
function, they appoint the AMC. They ensure that the fund is managed by the
AMC as per the defined objective in accordance with the trust deed and regulations
of SEBI. The trust is created through a document called the Trust Deed and is
executed by the fund sponsor in favor of the trustee. The trust deed is required to
be stamped as registered under the provisions of the Indian Regulatory Act and
regulation with SEBI clause in the trust deed, inter alias, deal with the
establishment of the trust, the appointment of the trustee , their powers and duties
and the obligation of the trustee towards the unit holders and the AMC. These
clauses also specify activity that the fund / AMC can’t undertake. The third
schedule of the SEBI (Mutual Fund) Regulatory Act,1996 specifies the content of
the Trust Deed.
 ASSET MANAGEMENT COMPANY

Its appointment and function:

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

The AMC would, in the name of the trust, float and then manage the direct
investment schemes as per regulations of the SEBI and as per Investment
Management Agreement it signs with the trustee. Chapter IV of SEBI (MF)
Regulations, 1996 describes the issue relevant to appointment, eligibility criteria
and the restrictions on the business activities and obligations of the AMC.

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

TYPES OF MUTUAL FUNDS

Schemes according to Maturity Period
A mutual fund scheme can be classified into open-ended scheme
or close-ended scheme depending on its maturity period.

Open-ended Fund/ Scheme:

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

Close-ended Fund/ Scheme:

A close-ended fund or scheme has a stipulated maturity period
e.g. 5-7 years. The fund is open for subscription only during a
specified period at the time of launch of the scheme. 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 the units 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 i.e.
either repurchase facility or through listing on stock exchanges.
These mutual funds schemes disclose NAV generally on weekly
basis.
Schemes according to Investment Objective

A scheme can also be classified as growth scheme, income

scheme, or balanced scheme considering its investment
objective. Such schemes may be open-ended or close-ended
schemes as described earlier. Such schemes may be classified
mainly as follows:

Growth / Equity Oriented Scheme:

The aim of growth funds is to provide capital appreciation over
the medium to long- term. Such schemes normally invest a major
part of their corpus in equities. Such funds have comparatively
high risks. These schemes provide different options to the
investors like dividend option, capital appreciation, etc. and the
investors may choose an option depending on their preferences.
The investors must indicate the option in the application form.
The mutual funds also allow the investors to change the options
at a later date.

Income / Debt Oriented Scheme:

The aim of income funds is to provide regular and steady income
to investors. Such schemes generally invest in fixed income
securities such as bonds, corporate debentures, Government
securities and money market instruments. Such funds are less
risky compared to equity schemes. These funds are not affected
because of fluctuations in equity markets. However, opportunities
of capital appreciation are also limited in such funds. The NAVs of
such funds are affected because of change in interest rates in the
country. If the interest rates fall, NAVs of such funds are likely to
increase in the short run and vice versa. However, long term
investors may not bother about these fluctuations.

Balanced Fund:
The aim of balanced funds is to provide both growth and regular
income as such schemes invest both in equities and fixed income
securities in the proportion indicated in their offer documents.
These are appropriate for investors looking for moderate growth.
They generally invest 40-60% in equity and debt instruments.
These funds are also affected because of fluctuations in share
prices in the stock markets. However, NAVs of such funds are
likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund:

These funds are also income funds and their aim is to provide
easy liquidity, preservation of capital and moderate income.
These schemes invest exclusively in safer short-term instruments
such as treasury bills, certificates of deposit, commercial paper
and inter-bank call money, government securities, etc. Returns on
these schemes fluctuate much less compared to other funds.
These funds are appropriate for corporate and individual investors
as a means to park their surplus funds for short periods.

Gilt Fund:

These funds invest exclusively in government securities.

Government securities have no default risk. NAVs of these
schemes also fluctuate due to change in interest rates and other
economic factors as is the case with income or debt oriented
schemes.

Index Funds
Index Funds replicate the portfolio of a particular index such as
the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These
schemes invest in the securities in the same weightage
comprising of an index. NAVs of such schemes would rise or fall in
accordance with the rise or fall in the index, though not exactly by
the same percentage due to some factors known as "tracking
error" in technical terms. Necessary disclosures in this regard are
made in the offer document of the mutual fund scheme.

Sector specific funds/schemes:

These are the funds/schemes which invest in the securities of only

those sectors or industries as specified in the offer documents.
e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods
(FMCG), Petroleum stocks, etc. The returns in these funds are
dependent on the performance of the respective
sectors/industries. While these funds may give higher returns,
they are more risky compared to diversified funds. Investors need
to keep a watch on the performance of those sectors/industries
and must exit at an appropriate time. They may also seek advice
of an expert.
Tax Saving Schemes

These schemes offer tax rebates to the investors under specific

provisions of the Income Tax Act, 1961 as the Government offers
tax incentives for investment in specified avenues. e.g. Equity
Linked Savings Schemes (ELSS). Pension schemes launched by
the mutual funds also offer tax benefits. These schemes are
growth oriented and invest pre-dominantly in equities. Their
growth opportunities and risks associated are like any equity-
oriented scheme.

Load or no-load Fund

A Load Fund is one that charges a percentage of NAV for entry or

exit. That is, each time one buys or sells units in the fund, a
charge will be payable. This charge is used by the mutual fund for
marketing and distribution expenses. Suppose the NAV per unit is
Rs.10. If the entry as well as exit load charged is 1%, then the
investors who buy would be required to pay Rs.10.10 and those
who offer their units for repurchase to the mutual fund will get
only Rs.9.90 per unit. The investors should take the loads into
consideration while making investment as these affect their
yields/returns. However, the investors should also consider the
performance track record and service standards of the mutual
fund which are more important. Efficient funds may give higher
returns in spite of loads.
A no-load fund is one that does not charge for entry or exit. It
means the investors can enter the fund/scheme at NAV and no
additional charges are payable on purchase or sale of units.
 INVESTMENT PLANS

The term investment plans generally refers to the services that the funds provide to
the investors offering different ways to invest. The different investment plans are
important consideration in the investment decisions because they determine the
level of flexibility available to the investors. Alternate investment plans offered by
the fund allow the investor freedom with respect to investing at one time or at
regular intervals, making transfers to different schemes within the same fund
family or receiving income at specified intervals or accumulating distributions.
Some of the investment plans offered are as follows:

Automatic Reinvestment Plans (ARP):

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

By using an automatic reinvestment plan, an investor is able to easily make

use of his or her investment gains to produce further gains, taking
advantage of compounding. Over a period of years, the added value
produced by automatic reinvestment can turn out to be worth a substantial
sum.

Automatic Investment Plans (AIP):

These requires the investor to invest a fixed sum periodically, thereby

lettering the investor save in a disciplined and phased manner. The mode
of investment could be through debit to the investor’s salary or bank
account.

Such plans are also known as Systematic Investment Plans. But mutual
funds do not offer this facility on all schemes. Typically they restrict it to
their plain vanilla scheme like diversified equity funds, income funds and
balanced funds. SIP works best in equity funds. It enforces saving
discipline and helps you profit from market volatility – you buy more units
when the market is down and fewer when the market is up.

This is one of the best ways to save money. By "paying themselves first"
many people find they invest more in the long run. Their investments are
treated as another part of their regular budget. It also forces a person
to pay for investments automatically, which prevents them from being able
to spend all of their disposable income.

Systematic Withdrawal Plan:

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

In short we can say that a systematic withdrawal plan is a financial plan

that allows a shareholder to withdraw money from an existing mutual fund
portfolio at predetermined intervals. The money withdrawn through a
systematic withdrawal plan can be reinvested in another portfolio or used to
pay for something else. Often, a systematic withdrawal plan is used to fund
expenses during retirement. However, this type of plan may be used for
other purposes as well.
Systematic Transfer Plans (STP):
These plans allow the customers to transfer on a periodic basis a specified
amount from one scheme to another within the same fund family- meaning
two schemes by the same AMC and belonging to the same fund. A transfer
will be treated as the redemption of the units from the scheme from which
the transfer is made. Such redemption or investment will be at the
applicable NAV for the respective schemes as specified in the offer
document.

It is necessary for the investor to maintain a minimum balance in the

scheme from which the transfer is made. Both UTI and other private funds
now generally offer these services to the investors in India. The service
allows the investors to maintain his investment actively to achieve his
objectives. Many funds do not even change any transaction fees for this
service.
EQUITY FUND
An open ended Equity scheme:

Fund features:
Who should invest?

The scheme is suitable for investors seeking effective diversification by spreading

the risks without compromising the return.

Investment objective

The objective is to provide investors long term capital appreciation.

Liquidity

Sale and repurchase on all business days.

NAV calculation

All business days.

Redemption proceeds

Will be dispatched within three business days.

Tax benefits

Indexation benefits, No Gift tax, No wealth tax.

Minimum applicable amount

New investors: Rs. 5000

Existing investors: Rs. 500

INDEX FUND
An open ended Index scheme:

Fund features:
Who should invest?

The scheme is suitable for investors seeking capital appreciation commensurate

with that of market.

Investment objective

The objective is to invest in the securities that comprise S&P CNX Nifty in the
same proportion so as to attain results commensurate with the Nifty.

Investment option

a. Growth b. Dividend

Liquidity

Sale and repurchase on all business days.

NAV calculation

All business days.

Redemption proceeds

Will be dispatched within three business days.

Tax benefits

Indexation benefits, No Gift tax, No wealth tax

Minimum applicable amount

New investors: Rs. 5000

BALANCED FUND
An open ended balanced scheme:

Fund features:
Who should invest?

The scheme is suitable for investors who seek long term growth and wish to avoid
the risk if investing solely in equities. It provides a balanced exposure to both
growth and income producing assets.

Investment objective

The objective is to provide periodic return and capital appreciation through a

judicious equity and debt instruments, while simultaneously aiming to minimize
capital erosion.

Liquidity

Sale and repurchase on all business days.

NAV calculation

All business days.

Redemption proceeds

Will be dispatched within three business days.

Tax benefits

Indexation benefits, No Gift tax, No wealth tax

Minimum applicable amount

New investors: Rs. 5000

Existing investors: Rs. 500

TAX SAVING FUND

Open- ended linked saving scheme:

Fund features:
Who should invest?

The scheme is suitable for investors seeking income tax rebate under section 88(2)
of Income Tax Act along with long term appreciation from investment in equities.

Investment objective

The objective is of the scheme is to build a high quality growth oriented portfolio
to provide long term capital gains to investors. The scheme aims at providing
return through capital appreciation over the file of the scheme.

Liquidity

Sale and repurchase on all business days.

NAV calculation

All business days.

Redemption proceeds

Will be dispatched within three business days.

Tax benefits

Tax –rebate under section 88, indexation benefits, No Gift tax, No wealth tax.

Special features

Personal accident insurance.

Lock –in period

3 years

Minimum applicable amount: Rs. 500

The importance of accounting knowledge

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

Even the mutual fund agents need to understand the accounting for the funds
transaction with investors and how the fund accounts for its assets and liabilities,
as the knowledge is essential for them to perform their basic role in explaining the
mutual fund performance to the investor.

For example, unless the agent knows how the NAV is computed, he cannot use
even simple measures such as NAV change to assess the fund performance. He
also should understand the impact of dividends paid out by the fund or entry/exit
loads paid by the investors on the calculation of the NAV and therefore the fund
performance.

The mutual funds in India are required to follow the accounting policies as laid
down by the SEBI (Mutual Fund) Regulations 1996 and amendments in 1998.
 NET ASSET VALUE
The performance of a particular scheme of a mutual fund is
denoted by Net Asset Value (NAV). Mutual funds invest the money
collected from the investors in securities markets. In simple
words, Net Asset Value is the market value of the securities held
by the scheme. Since market value of securities changes every
day, NAV of a scheme also varies on day to day basis. The NAV
per unit is the market value of securities of a scheme divided by
the total number of units of the scheme on any particular date.
For example, if the market value of securities of a mutual fund
scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs
units of Rs. 10 each to the investors, then the NAV per unit of the
fund is Rs.20. NAV is required to be disclosed by the mutual funds
on a regular basis - daily or weekly - depending on the type of
scheme.

The net asset value of the fund is the cumulative market value of
the assets fund net of its liabilities. In other words, if the fund is
dissolved or liquidated, by selling off all the assets in the fund,
this is the amount that the shareholders would collectively own.
This gives rise to the concept of net asset value per unit, which is
the value, represented by the ownership of one unit in the fund. It
is calculated simply by dividing the net asset value of the fund by
the number of units. However, most people refer loosely to the
NAV per unit as NAV, ignoring the "per unit". We also abide by the
same convention.

Calculation of NAV:
The most important part of the calculation is the valuation of the
assets owned by the fund. Once it is calculated, the NAV is simply
the net value of assets divided by the number of units
outstanding. The detailed methodology for the calculation of the
asset value is given below.

Asset value is equal to

Sum of market value of shares/debentures

+ Liquid assets/cash held, if any

+ Dividends/interest accrued

Amount due on unpaid assets

Expenses accrued but not paid

For liquid shares/debentures, valuation is done on the basis of the

last or closing market price on the principal For illiquid and
unlisted and/or thinly traded shares/debentures, the value has to
be estimated. For shares, this could be the book value per share
or an estimated market price if suitable benchmarks are
available. For debentures and bonds, value is estimated
on the basis of yields of comparable liquid securities after
adjusting for illiquidity. The value of fixed interest
bearing securities moves in a direction opposite to
interest rate changes. Valuation of debentures and bonds
is a big problem since most of them are unlisted and
thinly traded. This gives considerable leeway to the AMCs
on valuation and some of the AMCs are believed to take
advantage of this and adopt flexible valuation policies
depending on the situation exchange where the security is
traded.

Interest is payable on debentures/bonds on a periodic basis say

every 6 months. But, with every passing day, interest is said to be
accrued, at the daily interest rate, which is calculated by dividing
the periodic interest payment with the number of days in each
period. Thus, accrued interest on a particular day is equal to the
daily interest rate multiplied by the number of days since the last
interest payment date.

Usually, dividends are proposed at the time of the Annual General

meeting and become due on the record date. There is a gap
between the dates on which it becomes due and the actual
payment date. In the intermediate period, it is deemed to be
"accrued".

Expenses including management fees, custody charges etc. are

calculated on a daily basis.
 MUTUAL FUND PERFORMANCE

THE INVESTORS PROSPECTIVE:

The investor would actually be interested in tracking the value of investment,

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

THE ADVISOR’S PROSPECTIVE:

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

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

Different Performance Measures

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

Change in NAV: The most common measure.

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

Formula: For NAV change in absolute terms:

(NAV at the end of the period)- (NAV at the beginning of the period)
For NAV change in percentage terms:

(Absolute change in NAV/NAV at the beginning)*100

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

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

Suitability

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

Interpretation

Whether the return in term of NAV growth is sufficient or not should be

interpreted in light of the investment objective of the fund, current market
condition and alternative investment returns. Thus, a long term growth fund or
infrastructure fund will give lower returns when the market is in bearish phase.

Limitation:

However, this measure does not always give the correct picture, in case where the
fund has distributed to the investors a significant amount of the dividends in the
interim period.

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

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

Return on investment:
Purpose:

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

Formula

[(units held dividend/ex-dividend NAV)*end NAV]- begin NAV*100

Suitability

Total return with distribution s reinvested at NAV is a measure accepted by mutual

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

The income ratio:

Formula:

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

Purpose/suitability:

This ratio is useful measure for evaluating income-oriented funds, particularly debt
funds. It is not recommended for the funds that concentrate on capital appreciation.

Limitation:

The income ratio can not considered in isolation, it should be used only to
supplement the analysis based on the expense ratio and total return.
Tracking mutual fund performance

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

This is indeed the key towards maximizing wealth through mutual fund investing.
Proper tracking allow the investor to make informed & timely decisions regarding
his fund portfolio whether to acquire attractive funds, dispose off poor performers
or switch between funds /plans.

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

Mutual Funds Annual and Periodic Reports

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

Mutual Fund’s Website

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

Financial papers:
Daily newspaper such as Economic Times provides daily NAV figures for the
open end schemes and share prices of the close ended listed schemes. Besides,
weekly supplement of the economic newspaper give more analytical information
on the fund performance.

For example- Business Standard – the smart investor gives total returns over 3
months, 1 year and 3 years periods besides the fund size and ranking with the other
funds separately for Equity, Balanced, Debt, Money Market, short term debt and
tax planning funds.

Similarly, Economic Times weekly supplement gives additional data on open end
schemes such as Loads and Dividends besides the NAV and other information and
performance data on closed end scheme.

Fund Tracking Agencies:

In India, agencies such as Credence and value research are a source of information
for the mutual fund performance data and evaluation. This data is available only on
request and payment.

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

Prospectus:
SEBI regulations for mutual fund require the fund sponsors to disclose
performance data relating to schemes being managed by the concerned AMC such
as beginning and end of the year.
 LIFE CYCLE STAGES
Life cycle guide to financial planning
Financial goal and plans depends to a large extent on the
expenses and cash flow requirements of individuals. It is well
known that the age of the investors is an important determinant
of financial goals. Therefore, financial planners have segmented
investors according to certain stages.
LIFE CYCLE FINANCIAL ABILITY TO CHOICE OF
STAGE NEEDS INVEST INVESTNENT
Childhood Taken care of Investment of Long term
Stage by parents gifts
Young Immediate and Limited due to Liquid plans
unmarried short term higher and short term
spending investment
some exposure
to equity and
pension
products
Young married Short & Limited due to Medium –long
stage intermediate higher term
term. Housing spending cash investment.
and insurance flow Ability to take
needs requirement risks
consumer also limited Fixed income
finance needs insurance &
equity
Young Married Medium-long Limited Medium-long
with children term children’s Financial term
education. planning needs investments.
Holodays & are highest at Ability to take
consumer this stage is risks Portfolio
finance deal for of products for
Housing discipline growth and
spending and long term
saving
regularly
Married with Medium term Higher saving Medium term
older children needs for rations investment
children recommended with high
for intermittent liquidity needs
for intermittent Portfolio of
cash flows products
higher including
equity debt
and pension
plans
Retirement Short to Lower saving Medium term
stage medium term ratios , Higher investment
requirement preference for
for regular liquid and
cash flows income
generating
products low
appetite for
risky
investment

CHARACTERISSTION OF THE LIFE CYCLE OF

INVESTORS
Life cycle can be broadly classified into phases:
 • Birth and education

• Earning Years

• Retirement

On an average, the first stage lasts for 22 years, the second for
38 years and the last for 25-30 years.

The earning year is when income and expenses are highest. The
retirement stage is when incomes are low and expenses are high.

CLASSIFICATION OF INVESTORS NEEDS

Needs are generically classified into protection needs and
investment needs. Protection needs refer to needs that have to
be primarily taken care of to protect the living standards, current
requirements and survival requirement of investors. Need for
retirement income and need for insurance cover are protection
needs. Investment needs are additional financial needs that can
be served through saving and investments. These are needs for
children’s professional growth.
Analysis of Questionnaire
I visited to 45 people with my questionnaire related to awareness
of mutual fund out of them 40 responds me. I have analyzed in
my survey on the basis of these respondents feedback. Once the
questionnaire were filled then the next work that comes up is the
analysis of the data arrived.

We find out that more businessmen were inclined towards

investing in current account. The ladies were inclined to invest
their money in Gold and jewelleries. Service class people and
retired class people prefer more saving and fixed deposits. People
with high income prefer to take risk for higher return. They want
to invest in the mutual fund.

Similarly, people are interested in knowing what the returns of

their investment are. Similar large numbers of people are equally
interested in the safety of their funds. There are the people who
want easy liquidity of money and these are basically business
people who have a deal in the ready cash all the time.
Surprisingly, while a large number of people are aware of the tax
benefit a very small number of them only 9 are interested in it.

While a large number of people are area of mutual fund

comparing a very less number invests into it. On asking how they
get knowledge of mutual fund a large number of them attributed
to print media. Even banks today follow the role of the investment
advisors. Very few get any information from the e-media or

Hence, AMCs must increase the awareness about their product

through Electronic media (TVs, Cables, Radios etc.) as well as and
should not just constrained itself to the print advertisement.
Those who do not read newspaper.
 CONCLUSION

The mutual fund industry is growing at a tremendous pace. A

large number of plans have come up from different financial
resources. With the stock market soaring the investors are
attracted towards these schemes.

Only a small segment of the investors still in Mutual Funds and

the main source sources of information still are the financial
advisors followed by advertisements in different media. The
Indian investors generally invest over a period of 2-3 years. Also
there is a tendency to invest in fixed deposits due to the security
attached to it.

In order to excel and make mutual funds a success, companies

still need to create awareness and understand the psyche of the
Indian customer.
 SUGGESTIONS
Investor’s point of view:

The question that entire customer, irrespective of the age group

and financial status, think of is- Are mutual funds are a safe
option? What makes them safe? The basis of mutual fund
industry’s safety is the way the business is defined and regulation
of law. Since the mutual fund invests in the capital market
instruments, so proper knowledge is essential.

Hence the essential requirement is well informed seller and

equally informed buyer who understands and helped them to
understand the product (here we can say the capital market and
the money market instruments) is the essential pre-conditions.

Being prudent investor one should:

• Ask one’s agent to give details of different schemes and

match the appropriate ones.

• Go to the company records or the fund house regarding any

queries if one is not satisfied by the agents.

• Investors should always keep an eye on the performance of

the scheme and other good schemes as well which are
available in the market for the closed comparison.
• Never invest blindly in the investments before going through
the fact sheets, annual reports etc. of the company. Since,
according to the guidelines of SEBI, the AMCs are bound to
disclose all the relevant data that is necessary for the
investment purpose of investors.

Company’s point of view:

Following measures can be taken by the company for getting

higher investments in the mutual fund schemes:

• Educate the agents or the salesmen properly so that they

can take up the queries of the customer effectively.

• Set up separate customer care divisions where the

customers can anytime pose their query, regarding the
scheme or the current NAV etc. These customer care
units can work out in accordance with the requirements of
the customer and facilitates them to choose the scheme
that suits their financial status.

• Conduct seminars or programs about mutual fund where

each and every minute information about the product is
outlined including the risk factor associated with the
different classes of assets.
Appendices:

Marketing of Mutual Funds.

The present marketing strategies of mutual find can be divided

into main knowledge into main headings-

• Direct Marketing.

• Selling Through Intermediaries.

• Joint Calls.

Direct Marketing: This constitutes 20% of the total sales of

mutual funds. Some of the important tools used in this type of
selling are:

Personal Selling: In this case the customer support officer of the

fund at a particular branch takes appointment from the potential
prospects. Once the appointment is fixed, the branch officer (also
called Business Development Associate) then meet the prospect
and gives him all details about the various schemes being offered
by his fund. This conversion rate in this month of selling is in
between 30-40%.

Tele Marketing: In this case the emphasis is the people about

the fund. The names and phone number of people are picked at
random from telephone directory. Sometimes people belonging to
a particular profession are also contacted through phone and
their informed about the fund. Generally the conversion rate in
form of marketing is 15-20%.

Direct Mail: This is one common methods followed by all Mutual

Funds. Addresses of people are picked at random from telephone
directory. The customer support office then mails the literature of
the scheme offered by the fund. The follow up starts after 3-4
days of mailing the literature. The CSO calls on the people to
whom the literature was mailed. Answer their queries and is
generally successful in taking appointment with these people. It is
then job of BDA to try his best to convert that prospect into
customer.

Advertisement in Newspaper & Magazines: The funds

regularly advertise in business newspaper and magazines besides
in leading national dailies. The purpose is to keep investors aware
the schemes offered by the fund and their performance in recent
part.

Hoarding and Banners: In this case the hoarding and banners

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

Selling Through Intermediaries: Intermediaries contribute

towards 80% of total sales of mutual fund. These are the
people/distributors who are in direct touch with the investors.
They perform an important role in attracting new customers. Most
of these intermediaries are also involved in selling shares and
other investment instruments. They do commendable jobs in
convincing investors to invest in mutual funds. A lot depends on
after sales services offered by the intermediaries to the customer.
Customer prefer to work with those intermediaries who give them
right information about the fund and keep them abreast with the
latest change taking place in the market especially if they have
any bearing on the fund in which they have invested.

Regular Meeting with Distributors: Most of the funds conduct

monthly/bimonthly meeting with their distributors. The objective
is to hear their complaint regarding services aspect from fund
side and other queries related to market situation. Sometimes
special training programmes are also conducted for the new
agent/distributor. Training involves giving details about the
products of the fund, their present performance in the market,
what the competitors are doing and what they can do to increase
the sales of the fund.
Joint calls: This is generally done when the prospect seems to be
a high net worth investors. The BDA and the agent (who is located
close to HNI’s residence or area of operation) together visit the
prospect and brief them about the fund. The conversion rate is
very high in this situation (Generally around 60%). Both the funds
and the agent provide even after sale services in the particular
case.

Frequently Used Terms

NAV: It 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 number of units. Outstanding on valuation
date
Sales Price: it is the price you pay when you invest in a scheme.
It is also called offer price. It may include sales load

Repurchase Price: Price at which a close – ended scheme

repurchase its units & it may include a back- end load.

Redemption price: Price at which open ended scheme

repurchase their units & close- ended redeem their unit on
maturity. Their prices are NAV related.

Sales Load: charge collected by a scheme when it sells the units

also keep as front end load. Schemes that do not change a load-
No Load Schemes

Questionnaire

1. Name of the customer

Mr. / Mrs. / Ms.

2. Address/ Contact

3. What is the age group you face in?

i. 20-30

ii. 30-40

iii. 40-50

iv. 50-60

v. Above 60

4. What is your occupation?

i. Service

ii. Business

iii. Professional

iv. Dependent

v. Retired

5. What is the per month income of your family?

i. < 10,000

ii. 10-30,000

iii. 30-50,000

iv. > 50,000

6. Which type of investment you prefer?

i. Current saving

ii. Fixed deposits

iii. Shares
 iv. Bonds/debentures

v. Mutual fund

vi. Gold/real estates

7. What is your objective for investing?

i. Income generation

ii. Tax saving

iii. Others

8. What is your priority while investing your money?

i. Safety

ii. Higher returns

iii. Liquidity

iv. Tax benefits

9. Are you aware of mutual fund?

i. Yes

ii. No

10. Have you ever invested in mutual fund?

i. Yes

ii. No

11. From where you get information about mutual fund?

i. Print media

ii. Electronic media

iii. Friends/relatives
 iv. Broker/investment

v. Banks

12. What has been the reason of your not investing into the
mutual fund?

i. Lack of confidence

ii. Imperfect knowledge

iii. Find Govt. Securities/bonds better

iv. Other reasons