A PROJECT REPORT

On

“Mutual Fund”

A project Submitted to University of Mumbai for partial

completion of the degree of Bachelor of Commerce (Banking
and Insurance)
Under the faculty of Commerce

By
CHETRA PUTHRAN

Under the Guidance of PROF. R. PERUMAL

SIES (Nerul) COLLEGE OF ARTS, SCIENCE AND COMMERCE

Sri Chandrasekarendra Saraswati Vidyapuram
Plot I-C, Sector – V Nerul, Navi Mumbai – 400706
2019-20
 A PROJECT REPORT
On

“Mutual Fund”

A project Submitted to University of Mumbai for partial

completion of the degree of Bachelor of Commerce (Banking
and Insurance)
Under the faculty of Commerce

By
CHETRA PUTHRAN

Under the Guidance of PROF. R. PERUMAL

SIES (Nerul) COLLEGE OF ARTS, SCIENCE AND COMMERCE

Sri Chandrasekarendra Saraswati Vidyapuram
Plot I-C, Sector – V Nerul, Navi Mumbai – 400706
2019-20
 CERTIFICATE

This is to certify that MS. CHETRA PUTHRAN has worked and duly
Completed her project work for the Degree of Bachelor in Commerce
(Banking and Insurance). Under the faculty of Commerce in the subject of
BANKING AND INSURANCE and her project is entitled “Mutual Fund”
under my supervision.

I further certify that the entire work has been done by the learner under my
guidance and that no part of it has been submitted previously for any degree
of any University.

It is her own work and facts reported by her personal feelings and
investigations.

PRINCIPAL’S SIGNATURE
Dr. Milind Vaidya

INTERNAL EXAMINAR _____________________________

EXTERNAL EXAMINAR _____________________________

Date of Submission-___________________
 Declaration by learner

I the undersigned Miss Chetra Puthran here by,

Declare that the work embodied in this project work titled “Mutual Fund” form
my own contribution to the research work carried out under the guidance of

PROF. R. PERUMAL.

It is a result of my own research work and has not been previously submitted
to another university for any degree to this or any other.

Whenever reference has been made to previous works of others, it has been
clearly indicated as such and included in the bibliography.

I, here by further declare that all information of this document has been
obtained and presented in accordance with academic rules and ethical
conduct.

Name and Signature of Learner

Chetra Puthran

Certified by Prof R. Perumal

 ACKNOWLEDGEMENT

To list who all have helped me is difficult because they are numerous.

I would like to acknowledge the following as being idealistic channels and

fresh dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me the
chance to do this project.

I would like to thank my Principal, Dr. Milind Vaidya for providing the
necessary facilities required for completion of this project.

I would like to thank our Coordinator, Mrs. Bhumika More, for her moral
support and guidance.

I would like to express my sincere gratitude towards my project guide Prof. R.

Perumal whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various

reference books and magazines related to my project.

Lastly, I would like to thank each and every one person who directly or
indirectly helped me in the completion of project especially my Parents and
Peers who supported me throughout my project.
 Executive Summary

Mutual funds pool money from different investors and invest in

different investment sources like stocks, shares, bonds etc. A professional
fund manager manages these and returns are paid in form of dividends.
Some schemes assure fixed returns that are less in risk and some offer
dividends based on the market fluctuations and prices. Mutual funds have to
be subscribed in units and the purchase or sale is dependent on NAV (Net
Asset Value), taking into consideration the exit and entry load factors into
account.
This project undertaken deals with customer perception with
regard to mutual funds that is the schemes they prefer, the plans they are
opting, the reasons behind such selections and also this project dealt with
different investment options, which people prefer along with and apart from
mutual funds.

Like postal saving schemes, recurring deposits, bonds, and

shares. The findings from this project is that most of the people are hesitant in
going for new age investments like mutual funds and prefer to avert risks by
investing in less riskier investment options like recurring deposits and so.
Also, people going for investment in mutual funds are not going for high-risk
portfolios and schemes but want to go for medium risk elements. And another
finding is that most of the workingwomen does not prefer this type of
investments.

The growth of mutual funds has been phenomenal. The

mobilization of funds by mutual funds has been on the rise since 1964. When
mutual fund market was thrown open to the private sector in 1993, the corpus
of mutual fund in India has swelled tremendously. The main objective of the
study is to find the investors’ perception of Mutual Fund. Purposive sampling
method is used to collect data. Structured questionnaire was given to 74
respondents of the selected cities which consisted of both open ended and
close ended questions.
 INDEX

SR. NO PARTICULARS PAGE NO.

1 INTRODUCTION
2 RESEARCH
METHODOLOGY
3 LITERATURE
REVIEW
4 DATA ANALYSIS,
INTERPREATATIO
N AND
PRESENTATION
5 CONCLUSION AND
SUGGESTION
6 BIBLOGRAPHY
 Chapter 1 INTRODUCTION
1.1 Meaning of Mutual Funds
1.2 History of Mutual Funds
1.3 History of Mutual Fund in India
1.4 Characteristics of Mutual Funds
1.5 Advantages of Investing in Mutual Funds
1.6 Disadvantages of Investing in Mutual Funds
1.7 Structure of Mutual Funds in India
1.8 Types of Mutual Fund in India
1.9 Investment Strategies

1.10 How to Choose the Right Mutual Fund

1.11 Mutual Fund Industry in India

1.12 Regulatory Bodies for Mutual Fund in India

1.13 Assets under Management

1.1 MEANING OF MUTUAL FUNDS

A mutual fund is a professionally managed investment fund that pools money
from many investors to purchase securities. These investors may be retail or
institutional in nature.

Mutual funds have advantages and disadvantages compared to direct

investing in individual securities. The primary advantages of mutual funds are
that they provide economies of scale, a higher level of diversification, they
provide liquidity, and professional investors manage them. On the negative
side, investors in a mutual fund must pay various fees and expenses.

Primary structures of mutual funds include open-end funds, unit investment

trusts, and closed-end funds. Exchange-traded funds (ETFs) are open-end
funds or unit investment trusts that trade on an exchange. Some close- ended
funds also resemble exchange-traded funds as they are traded on stock
exchanges to improve their liquidity. Mutual funds are also classified by their
principal investments as money market funds, bond or fixed income funds,
stock or equity funds, hybrid funds or other. Funds may also be categorized
as index funds, which are passively managed funds that match the
performance of an index, or actively managed funds. Hedge funds are not
mutual funds; hedge funds cannot be sold to the general public as they
require huge investments. They are more risky than mutual funds and are
subject to different government regulations.

1.2 HISTORY OF MUTUAL FUNDS

Early history
The first modern investment funds (the precursor of today's mutual funds)
were established in the Dutch Republic. In response to the financial crisis of
1772–1773, Amsterdam-based businessman Abraham (or Adriaan) van
Ketwich formed a trust named Eendragt Maakt Magt ("unity creates
strength"). His aim was to provide small investors with an opportunity to
diversify.

Mutual funds were introduced to the United States in the 1890s. Early U.S.
funds were generally closed-end funds with a fixed number of shares that
often traded at prices above the portfolio net asset value. The first open-end
mutual fund with redeemable shares was established on March 21, 1924 as
the Massachusetts Investors Trust (it is still in existence today and is now
managed by MFS Investment Management).

In the United States, closed-end funds remained more popular than open-end
funds throughout the 1920s.

The creation of the Massachusetts Investors' Trust in Boston, heralded the

arrival of the modern mutual fund in 1924. The fund was opened to investors
in 1928, eventually spawning the mutual fund firm known today as MFS
Investment Management. State Street Investors' Trust was the custodian of
the Massachusetts Investors' Trust. Later, State Street started its own fund in
1924 with Richard Paine, Richard Saltonstall and Paul Cabot at the helm.
Saltonstall was also affiliated with Scudder, Stevens and Clark, an outfit that
would launch the first no-load fund in 1928. A momentous year in the history
of the mutual fund, 1928 also saw the launch of the Wellington Fund, which
was the first mutual fund to include stocks and bonds, as opposed to direct
merchant-bank style of investments in business and trade.

In 1929, open-end funds accounted for only 5% of the industry's $27 billion in
total assets.

After the Wall Street Crash of 1929, the United States Congress passed a

series of acts regulating the securities markets in general and mutual funds in
particular.

 The Securities Act of 1933 requires that all investments sold to the

public, including mutual funds, be registered with the SEC and that they
provide prospective investors with a prospectus that discloses essential
facts about the investment.
 The Securities and Exchange Act of 1934 requires that issuers of
securities, including mutual funds, report regularly to their investors. This
act also created the Securities and Exchange Commission, which is the
principal regulator of mutual funds.
 The Revenue Act of 1936 established guidelines for the taxation of
mutual funds.
 The Investment Company Act of 1940 established rules specifically
governing mutual funds.
In 1971, William Fouse and John McQuown of Wells Fargo established the
first index fund, a concept that John Bogle would use as a foundation on
which to build The Vanguard Group, a mutual fund powerhouse renowned for
low-cost index funds. The 1970s also saw the rise of the no-load fund. This
new way of doing business had an enormous impact on the way mutual funds
were sold and would make a major contribution to the industry's success.

With the 1980s and '90s came bull market mania and previously obscure fund
managers became superstars. Max Heine, Michael Price and Peter Lynch,
the mutual fund industry's top gunslingers, became household names and
money poured into the retail investment industry at a stunning pace. The burst
of the tech bubble in 1997 and a spate of scandals involving big names in the
industry took much of the shine off of the industry's reputation. Then the Great
Recession of 2007 scared a lot of people out of mutual funds once again. For
part of this period, the entire world was in a financial crisis. Shady dealings at
major fund companies demonstrated that mutual funds aren't always benign
investments managed by folks who have their shareholders' best interests in
mind.

1.3 MUTUAL FUND HISTORY IN INDIA

The mutual fund industry in India started in 1963 with the formation of Unit
Trust of India, at the initiative of the Government of India and Reserve Bank of
India. The history of mutual funds in India can be broadly divided into four
distinct phases

First Phase - 1964-1987

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

was set up by the Reserve Bank of India and functioned under the Regulatory
and administrative control of the Reserve Bank of India. In 1978 UTI was de-
linked from the RBI and the Industrial Development Bank of India (IDBI) took
over the regulatory and administrative control in place of RBI. The first
scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had
Rs. 6,700 crores of assets under management.

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

1987 marked the entry of non-UTI, public sector mutual funds set up by public
sector banks and Life Insurance Corporation of India (LIC) and General
Insurance Corporation of India (GIC). SBI Mutual Fund was the first non-UTI
Mutual Fund established in June 1987 followed by Canbank Mutual Fund
(Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual
Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92).
LIC established its mutual fund in June 1989 while GIC had set up its mutual
fund in December 1990. At the end of 1993, the mutual fund industry had
assets under management of Rs. 47,004 crores.

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

With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund
families. Also, 1993 was the year in which the first Mutual Fund Regulations
came into being, under which all mutual funds, except UTI were to be
registered and governed. The erstwhile Kothari Pioneer (now merged with
Franklin Templeton) was the first private sector mutual fund registered in July
1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more

comprehensive and revised Mutual Fund Regulations in 1996. The industry
now functions under the SEBI (Mutual Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign
mutual funds setting up funds in India and also the industry has witnessed
several mergers and acquisitions. As at the end of January 2003, there were
33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of
India with Rs. 44,541 crores of assets under management was way ahead of
other mutual funds.
Fourth Phase - since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI
was bifurcated into two separate entities. One is the Specified Undertaking of
the Unit Trust of India with assets under management of Rs. 29,835 crores as
at the end of January 2003, representing broadly, the assets of US 64
scheme, assured return and certain other schemes. The 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, 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.

These new regulations encouraged the development of open-end mutual

funds (as opposed to closed-end funds).

Growth in the U.S. mutual fund industry remained limited until the 1950s,
when confidence in the stock market returned. By 1970, there were
approximately 360 funds with $48 billion in assets.

The introduction of money market funds in the high interest rate environment
of the late 1970s boosted industry growth dramatically. The first retail index
fund, First Index Investment Trust, was formed in 1976 by The Vanguard
Group, headed by John Bogle; it is now called the "Vanguard 500 Index Fund"
and is one of the world's largest mutual funds. Fund industry growth continued
into the 1980s and 1990s.

According to Robert Pozen and Theresa Hamacher, growth was the result of
three factors:
 1. A bull market for both stocks and bonds,
2. New product introductions (including funds based on municipal bonds,
various industry sectors, international funds, and target date funds)
and
3. Wider distribution of fund shares. Among the new distribution channels
were retirement plans. Mutual funds are now the preferred investment
option in certain types of fast-growing retirement plans, specifically
in 401(k), other defined contribution plans and in individual retirement
accounts (IRAs), all of which surged in popularity in the 1980s.

Total mutual fund assets fell in 2008 as a result of the financial crisis of 2007–
2008.

1.4 CHARACTERISTICS OF MUTUAL FUNDS

A diversified portfolio of high-performing mutual funds can provide an investor

with an excellent vehicle for accumulating wealth. However, with thousands of
possibilities to choose from, selecting the proper funds to invest in can be an
overwhelming task. Fortunately, there are certain characteristics the best-
performing funds seem to share. Using a list of basic characteristics as a way
of filtering, or paring down, the massive list of all possible funds available for
consideration can greatly simplify the task of fund selection, as well as
increase the probability an investor's choices become profitable.

Low Fees or Expenses

Mutual funds with relatively low expense ratios are generally always desirable,
and low expenses do not mean low performance. In fact, it is very often the
case that the best-performing funds in a given category are among those that
offer expense ratios below the category average.

There are some funds that charge substantially higher-than-average fees and
justify the higher fees by pointing to the fund's performance. But the truth is
there is very little genuine justification for any mutual fund having an expense
ratio much over 1%.
Mutual fund investors sometimes fail to understand how big a difference even
a relatively small percentage increase in fund expenses can make in the
investor's bottom-line profitability. importance for mutual fund investors, who
should be diligent in seeking out funds with low expense ratios. In addition to
the basic operating expenses charged by all funds, some funds charge a
"load," or a sales fee that can run as high as 6 to 8%.

Consistently Good Performance

Most investors utilize investing in mutual funds as part of their retirement
planning. Therefore, investors should select a fund based on its long-term
performance, not on the fact that it had one really great year. Consistent
performance by the fund's manager, or managers, over a long period of time
indicates the fund will likely pay off well for an investor in the long-run. A
fund's average return on investment (ROI) over a period of 20 years is more
important than its one-year or three-year performance. The best funds may
not produce the highest returns in any one year but consistently produce
good, solid returns over time. It helps if a fund has been around long enough
for investors to see how well it manages during bear market cycles. The best
funds are able to minimize losses during difficult economic periods or cyclical
industry downturns.

A large part of consistently good performance is having a good fund manager.

Investors should review a fund manager's background, and previous
experience and performance as part of their overall evaluation of the fund.
Good investment managers do not usually suddenly go bad, nor do poor
investment managers tend to suddenly become overachievers.

Sticking to a Solid Strategy

The best-performing funds perform well because they are directed by a good
investment strategy. Investors should be clearly aware of the fund's
investment objective and the strategy the fund manager uses to achieve that
objective.

Be wary of what is commonly called "portfolio drift." This occurs when the fund
manager drifts off course from the fund's stated investment goals and strategy
in such a way that the composition of the fund's portfolio changes significantly
from its original goals; for example, it may shift from being a fund that invests
in large-cap stocks that pay above-average dividends to being a fund mainly
invested in small-cap stocks that offer little or no dividends at all. If a fund's
investing strategy changes, the change and the reason for it should be clearly
explained to fund shareholders by the fund manager.

Trustworthy, With Solid Reputations

The best funds are perennially developed by well-established, trustworthy
names in the mutual fund business, such as Fidelity, T. Rowe Price and
Company, and the Vanguard Group. With all the unfortunate investing
scandals over the past 20 years, investors are well-advised to do business
only with firms in which they have the utmost confidence in regard to honesty
and fiscal responsibility. The best mutual funds are invariably offered by
companies that are transparent and upfront about their fees and operations,
and they do not try to hide information from potential investors or in any way
mislead them.

Plenty of Assets, But Not Too Much Money

The best-performing funds tend to be those that are widely invested in, but fall
short of being the funds with the very highest amount of total assets. When
funds perform well, they attract additional investors and are able to expand
their investment asset base. However, there comes a point at which a fund's
total assets under management (AUM) becomes so large as to be unwieldy
and cumbersome to manage. When investing billions, it becomes increasingly
difficult for the fund manager to buy and sell stocks without the size of his
transaction shifting the market price so it costs more than he ideally wishes to
pay to acquire a large amount of stock. This can be particularly true for funds
that seek undervalued, less-popular stocks. If a fund suddenly looks to buy
Rs. 50 million worth of a stock that is ordinarily not very heavily traded, then
the demand pressure injected into the market by the fund's buying could drive
the stock's price substantially higher, thus making it less of a bargain than it
appeared when the fund manager evaluated it prior to deciding to add it to the
portfolio.
The same problem can occur when the fund seeks to liquidate a position in a
stock. The fund may hold so many shares of the stock that when it attempts to
sell them, the oversupply may put substantial downward pressure on the
stock price so that, although the fund manager intended to sell the shares at
Rs.50 a share, by the time he is able to fully liquidate the fund's holdings of
the stock, the average realized sale price is only Rs. 47 a share.

Investors may wish to look for mutual funds that are well-capitalized,
indicating the fund has successfully drawn the attention of other individual
investors and institutions but has not grown to the point where the size of the
fund's total assets makes it difficult for the fund to be managed adroitly and
efficiently. Problems in managing the fund's assets may arise as the fund's
total assets grow beyond the 1 billion mark.

Selecting mutual funds is always a personal endeavor that should ultimately

be guided by the individual's investment goals and plans, his risk
tolerance level and his overall financial situation. However, there are some
basic guidelines investors can follow to streamline and simplify the fund
selection process.

ADVANTAGES

Advanced Portfolio Management

When you buy a mutual fund, you pay a management fee as part of your
expense ratio, which is used to hire a professional portfolio manager who
buys and sells stocks, bonds, etc. This is a relatively small price to pay for
getting professional help in the management of an investment portfolio.

Dividend Reinvestment
As dividends and other interest income sources are declared for the fund, it
can be used to purchase additional shares in the mutual fund, therefore
helping your investment grow.

Risk Reduction (Safety)

Reduced portfolio risk is achieved through the use of diversification, as most
mutual funds will invest in anywhere from 50 to 200 different securities—
depending on the focus. Numerous stock index mutual funds own 1,000 or
more individual stock positions.

Convenience and Fair Pricing

Mutual funds are easy to buy and easy to understand. They typically have low
minimum investments (some around $2,500) and they are traded only once
per day at the closing net asset value (NAV). This eliminates price fluctuation
throughout the day and various arbitrage opportunities that day traders
practice.

Professional Management
When you buy a mutual fund, you also are choosing a professional money
manager. This manager makes the decisions on how to invest your money,
based on a good deal of research and an overall strategy for making money.
Only you can decide whether you are more comfortable with that than with
making the decisions on your own.

Liquidity
An investor who is hit with a financial emergency might have to sell out in a
hurry. That can be disastrous if the assets have taken a hit at the wrong
moment. It tends to be less so in mutual funds, which swing in value less
wildly because of their diversification.

Watch out for any fees associated with selling, including back-end load fees,
which are percentages deducted from your total when you sell the fund. Also,
note that mutual funds, unlike stocks and exchange-traded funds, transact
only once per day after the fund's net asset value is calculated.

Divisibility
The owner of a mutual fund can invest a regular round sum every month, say
Rs.500 or Rs.1000 (SIP). That gives the investor another tiny bite of many
assets. A stock-picker, by contrast, might get one or two shares of stock, with
an odd number of dollars left over. Or, the investor can save up for many
months to get one share of Amazon.
These periodic investments in a mutual fund also allow the investor to take
advantage of the benefits of dollar-cost averaging, a strategy that cushions a
portfolio from the impact of price volatility.

So, rather than waiting until you have enough money to buy higher-cost
investments, you can get in right away with a mutual fund. This choice
provides an additional advantage: liquidity.

DISADVANTAGES

High Expense Ratios and Sales Charges

Investors must pay attention to mutual fund expense ratios and sales charges,
they can get out of hand. Entry load and exit may be between 1-2% over total
sum of investment. There are several good fund companies out there that
have no sales charges. Fees reduce overall investment returns.

Management Abuses
Churning, turnover, and window dressing may happen if your manager is
abusing his or her authority. This includes unnecessary trading, excessive
replacement, and selling the losers prior to quarter-end to fix the books.

Tax Inefficiency
Like it or not, investors do not have a choice when it comes to capital
gains payouts in mutual funds. Due to the turnover, redemptions, gains, and
losses in security holdings throughout the year, investors typically receive
distributions from the fund that are an uncontrollable tax event.

Poor Trade Execution

If you place your mutual fund trade any time before the cut-off time for same-
day NAV, you’ll receive the same closing price NAV for your buy or sell on the
mutual fund. For investors looking for faster execution times, maybe because
of short investment horizons, day trading, or timing the market, mutual funds
provide a weak execution strategy.

Lock-in periods
Many mutual funds have long-term lock-in periods, ranging from five to eight
years. Exiting such funds before maturity can be an expensive affair. A
specific portion of the fund is always kept in cash to pay out an investor who
wants to exit the fund. This portion cannot earn interest for investors.

Dilution

While diversification averages your risks of loss, it can also dilute your profits.
Hence, you should not invest in more than seven to nine mutual funds at a
time. As you have just read above, the benefits and potential of mutual funds
can undoubtedly override the disadvantages, if you make informed choices.

THE STRUCTURE OF MUTUAL FUND

The Fund Sponsor

The Fund Sponsor is the first layer in the three-tier structure of Mutual Funds
in India. SEBI regulations say that a fund sponsor is any person or any entity
that can set up a Mutual Fund to earn money by fund management. This fund
management is done through an associate company, which manages the
investment of the fund. A sponsor can be seen as the promoter of the
associate company. A sponsor has to approach SEBI to seek permission for a
setting up a Mutual Fund. Once SEBI agrees to the inception, a Public Trust is
formed under the Indian Trust Act, 1882 and is registered with SEBI. Trustees
are appointed to manage the trust and an asset management company is
created complying with the Companies Act, 1956. There are eligibility criteria
given by SEBI for the fund sponsor: The sponsor must have experience in
financial services for a minimum of five years with a positive Net worth for all
the previous five years. The net worth of the sponsor in the immediate last
year has to be greater than the capital contribution of the AMC. The sponsor
must show profits in at least three out of five years, which includes the last
year as well. The sponsor must have at least 40% shares in the net worth of
the asset management company. Any entity that fulfills the above criteria can
be termed as a sponsor of the Mutual Fund.

Trust and Trustees

Trust and trustees form the second layer of the structure of Mutual Funds in
India. The fund sponsor in favour of the trustees, through a document called a
trust deed, creates a trust. The trustees manage the trust and they are
answerable to investors. They can be seen as primary guardians of fund and
assets. Trustees can be formed by two ways – a Trustee Company or a Board
of Trustees. The trustees work to monitor the activities of the Mutual Fund and
check its compliance with SEBI (Mutual Fund) regulations. They also monitor
the systems, procedures, and overall working of the asset management
company. Without the trustees’ approval, AMC cannot float any scheme in the
market. The trustees have to report to SEBI every six months about the
activities of the AMC.

Asset Management Companies

Asset Management Companies are the third layer in the structure of Mutual
Funds. The asset management company acts as the fund manager or as an
investment manager for the trust. A small fee is paid to the AMC for managing
the fund. The AMC is responsible for all the fund-related activities. It initiates
various schemes and launches the same. The AMC is bound to manage
funds and provide services to the investor. It solicits these services with other
elements like brokers, auditors, bankers, registrars, lawyers, etc. and works
with them. To ensure that there is no conflict between the AMCs, there are
certain restrictions imposed on the business activities of the companies.

Other Components in the Structure of Mutual Funds

Custodian
A custodian is responsible for the safekeeping of the securities of the Mutual
Fund. They manage the investment account of the Mutual Fund, ensure the
delivery and transfer of the securities. They also collect and track the
dividends & interests received on the Mutual Fund investment.

Registrar and Transfer Agents (RTAS)

These are the entities who provide services to Mutual Funds. RTAs are more
like the operational arm of Mutual Funds. Since the operations of all Mutual
 Fund companies are similar, it is economical in scale and cost effective for all
the 44 AMCs to seek the services of RTAs. CAMS, Karvy, Sundaram,
Principal, Templeton, etc. are some of the well-known RTAs in India .

Their services include:

 Processing investors’ application.
 Keeping a record of investors’ details.
 Sending out account statements to the investors.
 Sending out periodic reports.
 Processing the payouts of the dividends.
 Updating the investor details i.e. adding new members and removing
those who have withdrawn from the fund.

Auditor
Auditors audit and scrutinize record books of accounts and annual reports of
various schemes. Each AMC hires an independent auditor to analyze the
books so as to keep their transparency and integrity intact. Brokers AMC uses
the services of brokers to buy and sell securities on the stock market. The
AMCs uses research reports and recommendations from many brokers to
plan their market moves. The three-tier structure of the Mutual Funds is in
place keeping the fiduciary nature of the Mutual Funds in mind. It ensures that
each element of the system works independently and efficiently. This
structure of Mutual Funds is in line with the international standards and thus
there is a proper separation of responsibilities and functioning of each
constituent of the structure.

TYPES OF MUTUAL FUNDS IN INDIA

Types of Mutual Funds based on structure

 Open-Ended Funds
These are funds in which units are open for purchase or redemption
through the year. All purchases/redemption of these fund units are done at
prevailing NAVs. Basically, these funds will allow investors to keep invest as
 long as they want. There are no limits on how much can be invested in the
fund. They also tend to be actively managed which means that there is a
fund manager who picks the places where investments will be made. These
funds also charge a fee which can be higher than passively managed funds
because of the active management. They are an ideal investment for those
who want investment along with liquidity because they are not bound to any
specific maturity periods. Which means that investors can withdraw their
funds at any time they want thus giving them the liquidity they need.

 Close-Ended Funds
These are funds in which units can be purchased only during the initial offer
period. Units can be redeemed at a specified maturity date. To provide for
liquidity, these schemes are often listed for trade on a stock exchange.
Unlike open ended mutual funds, once the units or stocks are bought, they
cannot be sold back to the mutual fund, instead they need to be sold
through the stock market at the prevailing price of the shares.

 Interval Funds
These are funds that have the features of open-ended and close-ended
funds in that they are opened for repurchase of shares at different intervals
during the fund tenure. The fund management company offers to
repurchase units from existing unitholders during these intervals. If
unitholders wish to they can offload shares in favour of the fund.

Types of Mutual Funds based on Asset Class

 Equity Funds
These are funds that invest in equity stocks/shares of companies. These
are considered high-risk funds but also tend to provide high returns. Equity
funds can include specialty funds like infrastructure, fast moving consumer
goods and banking to name a few.

 Debt Funds
These are funds that invest in debt instruments e.g. company debentures,
government bonds and other fixed income assets. They are considered
 safe investments and provide fixed returns. These funds do not deduct tax
at source so if the earning from the investment is more than Rs. 10,000
then the investor is liable to pay the tax on it himself.

 Money Market Funds

These are funds that invest in liquid instruments e.g. T-Bills, CPs etc. They
are considered safe investments for those looking to park surplus funds for
immediate but moderate returns. Money markets are also referred to as
cash markets and come with risks in terms of interest risk, reinvestment risk
and credit risks.

 Balanced or Hybrid Funds

These are funds that invest in a mix of asset classes. In some cases, the
proportion of equity is higher than debt while in others it is the other way
around. Risk and returns are balanced out this way. An example of a hybrid
fund would be Franklin India Balanced Fund-DP (G) because in this fund,
65% to 80% of the investment is made in equities and the remaining 20% to
35% is invested in the debt market. This is so because the debt markets
offer a lower risk than the equity market.

Types of Mutual Funds based on Investment Objective

 Growth funds
Under these schemes, money is invested primarily in equity stocks with the
purpose of providing capital appreciation. They are considered to be risky
funds ideal for investors with a long-term investment timeline. Since they
are risky funds, they are also ideal for those who are looking for higher
returns on their investments.

 Income funds
Under these schemes, money is invested primarily in fixed-income
instruments e.g. bonds, debentures etc. with the purpose of providing
capital protection and regular income to investors.

 Liquid funds
 Under these schemes, money is invested primarily in short-term or very
short-term instruments e.g. T-Bills, CPs etc. with the purpose of providing
liquidity. They are considered to be low on risk with moderate returns and
are ideal for investors with short-term investment timelines.

 Tax-Saving Funds (ELSS)

These are funds that invest primarily in equity shares. Investments made in
these funds qualify for deductions under the Income Tax Act. They are
considered high on risk but also offer high returns if the fund performs well.

 Capital Protection Funds

These are funds where funds are split between investment in fixed income
instruments and equity markets. This is done to ensure protection of the
principal that has been invested.

 Fixed Maturity Funds

Fixed maturity funds are those in which the assets are invested in debt and
money market instruments where the maturity date is either the same as
that of the fund or earlier than it.

 Pension Funds
Pension funds are mutual funds that are invested in with a really long term
goal in mind. They are primarily meant to provide regular returns around the
time that the investor is ready to retire. The investments in such a fund may
be split between equities and debt markets where equities act as the risky
part of the investment providing higher return and debt markets balance the
risk and provide lower but steady returns. The returns from these funds can
be taken in lump sums, as a pension or a combination of the two.

Types of Mutual Funds based on specialty

 Sector Funds
These are funds that invest in a particular sector of the market e.g.
Infrastructure funds invest only in those instruments or companies that relate
 to the infrastructure sector. Returns are tied to the performance of the chosen
sector. The risk involved in these schemes depends on the nature of the
sector.

 Index Funds
These are funds that invest in instruments that represent a particular index
on an exchange so as to mirror the movement and returns of the index e.g.
buying shares representative of the BSE Sensex.

 Fund of funds:
These are funds that invest in other mutual funds and returns depend on
the performance of the target fund. These funds can also be referred to as
multi manager funds. These investments can be considered relatively safe
because the funds that investors invest in actually hold other funds under
them thereby adjusting for risk from any one fund.

 Emerging market funds

These are funds where investments are made in developing countries that
show good prospects for the future. They do come with higher risks as a
result of the dynamic political and economic situations prevailing in the
country.

 International funds
These are also known as foreign funds and offer investments in companies
located in other parts of the world. These companies could also be located
in emerging economies. The only companies that won’t be invested in will
be those located in the investor’s own country.

 Global funds
These are funds where the investment made by the fund can be in a
company in any part of the world. They are different from
international/foreign funds because in global funds, investments can be
made even the investor's own country.
 Real estate funds
These are the funds that invest in companies that operate in the real estate
sectors. These funds can invest in realtors, builders, property management
companies and even in companies providing loans. The investment in the
real estate can be made at any stage, including projects that are in the
planning phase, partially completed and are actually completed.

 Commodity focused stock funds

These funds don’t invest directly in the commodities. They invest in
companies that are working in the commodities market, such as mining
companies or producers of commodities. These funds can, at times,
perform the same way the commodity is as a result of their association with
their production.

 Market neutral funds

The reason that these funds are called market neutral is that they don’t
invest in the markets directly. They invest in treasury bills, ETFs and
securities and try to target a fixed and steady growth.

 Inverse/leveraged funds
These are funds that operate unlike traditional mutual funds. The earnings
from these funds happen when the markets fall and when markets do well
these funds tend to go into loss. These are generally meant only for those
who are willing to incur massive losses but at the same time can provide
huge returns as well, as a result of the higher risk they carry.

 Asset allocation funds

The asset allocation fund comes in two variants, the target date fund and
the target allocation fund. In these funds, the portfolio managers can adjust
the allocated assets to achieve results. These funds split the invested
amounts and invest it in various instruments like bonds and equity.

 Gilt Funds
 Gilt funds are mutual funds where the funds are invested in government
securities for a long term. Since they are invested in government securities,
they are virtually risk free and can be the ideal investment to those who
don’t want to take risks.

 Exchange traded funds 

These are funds that are a mix of both open and close ended mutual funds
and are traded on the stock markets. These funds are not actively
managed, they are managed passively and can offer a lot of liquidity. As a
result of their being managed passively, they tend to have lower service
charges (entry/exit load) associated with them.

Types of Mutual Funds based on risk

 Low risk
These are the mutual funds where the investments made are by those who
do not want to take a risk with their money. The investment in such cases
are made in places like the debt market and tend to be long term
investments. As a result of them being low risk, the returns on these
investments is also low. One example of a low risk fund would be gilt funds
where investments are made in government securities.

 Medium risk
These are the investments that come with a medium amount of risk to the
investor. They are ideal for those who are willing to take some risk with the
investment and tends to offer higher returns. These funds can be used as
an investment to build wealth over a longer period of time.

 High risk
These are those mutual funds that are ideal for those who are willing to take
higher risks with their money and are looking to build their wealth. One
example of high-risk funds would be inverse mutual funds. Even though the
risks are high with these funds, they also offer higher returns.
INVESTMENT STRATEGIES

1. Systematic Investment Plan

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

SIPs help you to average your purchase cost and maximize returns. When
you invest regularly over a period irrespective of the market conditions, you
would get more units when the market is low and less units when the market
is high. This averages out the purchase cost of your mutual fund units.

Another benefit, called the eighth wonder of the world by some, is the power
of compounding. When you invest over a long period and earn returns on the
returns earned by your investment, your money would start compounding.
This helps you to build a large corpus that help you to achieve your long-term
financial goals with regular small investments.

Systematic investment plan is a method to build an investment portfolio with a

small sip investment in mutual funds at regular intervals. Many investors
choose this route to enter the financial markets and benefit from compounding
returns the best way. There are several benefits to investing in SIP. Here's a
look at what they are:

 Disciplined Saving: For any successful investment, discipline is

essence. By investing through SIP, you commit to save regularly, and
 every investment takes you a step closer to reaching your financial
objectives.
 Convenience: Investing via SIP is a hassle-free process. You can
instruct your bank to facilitate auto-debits from your account. You can
also visit the website of the fund house you are interested in and click
on the link for SIP registration link/tab.
 Rupee cost averaging: If you choose to invest a fixed amount of
money every month via SIP, you will see that more units or stocks are
purchased when the price of the investment goes down. This brings
down the average cost of buying the financial asset overtime.
 Benefits of compounding: To generate wealth, the key is to start
investing early and regularly. A small sum of money invested via SIP
on a regular basis can grow into a considerably large sum. Through the
power of compounding, your interest earns interest, allowing you to
fetch a substantial amount of wealth.
 No need to time the market: Knowing when the right time is to invest
in the market can pose a big dilemma. It is hard to predict when the
market will be at its peak or low point. Investing through SIP keeps you
from timing the market. While SIP are not free from the market
volatility, you needn't worry about the market movements.

2. Systematic Transfer Plan

An STP transfers a fixed amount of money from one mutual fund to another.
Your balance in the first fund is reduced and your balance in the second fund
is increased. This happens automatically and you do not have to do anything
to transfer the money. 
An STP is closely related to SIP and Systematic Withdrawal Plan (SWP), two
other common techniques of mutual fund investing. A SIP invests a fixed
amount in a mutual fund at regular intervals and an SWP withdraws a fixed
amount from a mutual fund at a regular interval.

It should be noted that STPs can only transfer money between two mutual
fund schemes of the same Asset Management Company (AMC). For
 example, an STP cannot transfer money each month between Axis Liquid
Fund and ICICI Long Term Equity Fund.

Benefits of STP
1. Rupee Cost Averaging: An STP averages out an investor’s purchase
price and protects him from catching a market high. For example, if
the NAV of the fund is Rs 10 in the first month, Rs 8 in the second
month and Rs 6 in the third month, an STP will get him an average
price of Rs 8. On the other hand, a lump sum in the first month would
get him a price of Rs 10.
2. Lumpsum Investment: An investor who has obtained a lump sum, say
through a bonus at work or from the sale of a property can invest in
mutual funds through STPs rather than lump sums. For example, a
person who has obtained Rs 50 lakh by selling a house can invest this
amount in 1-2 liquid funds which are extremely low risk. From
these liquid funds, he can initiate STPs into equity funds over the next
2-3 years. This is less risky than investing the entire Rs 50 lakh on a
single day or over a few days.

3.Systematic Withdrawal Plan

SWP or Systematic Withdrawal Plan allows you to withdraw a fixed amount of
money from a mutual fund. Unlike lumpsum redemption of the mutual fund, an
SWP allows a planned and regular flow of income. An SWP can be very
useful especially in the time of financial exigencies such as unemployment.
However, mutual fund returns are not guaranteed and an SWP can deplete
your fund balance well before the withdrawal period ends. An SWP can be set
up from any type of mutual fund – equity, debt or hybrid.

Tax Implications of SWP

Holding
Fund Type Tax Type Tax Rate
Period
Short Term Capital Gains
Equity Fund < 1 Year 15%
Tax
Long Term Capital Gains
Equity Fund > 1 Year 10%*
Tax
 Short Term Capital Gains
Debt Fund < 3 Years As per Income Tax Slab
Tax
Long Term Capital Gains
Debt Fund > 3 Years 20% after benefits of indexation
Tax

LTCG on equity funds is applicable only when the capital gain exceeds Rs 1
lakh.
The applicable tax on an SWP depends on two factors – the type of fund you
are withdrawing from and the length of your holding period. In case of equity
funds, withdrawals within 1 year of purchase will be taxed under the Short
Term Capital Gains Tax (STCG) at 15%. Withdrawals after 1 year, in excess
of Rs 1 lakh will be taxed under the Long Term Capital Gains Tax (LTCG) at
10%.

In case of debt funds, withdrawals within 3 years of purchase are taxed as per
your slab and withdrawals after 3 years are taxed at 20% after giving you the
benefit of indexation. Indexation reduces your tax liability to account for
inflation. Each withdrawal is taken as part capital and part income as per
the First-in-First-Out (FIFO) system of accounting.

HOW TO CHOOSE THE RIGHT MUTUAL FUND

With so many different types of mutual funds available in the market, picking
one that suits specific investment needs the most is not an easy task. The
simplest advice that can be given in that regard is to first understand your own
needs. The next step would be to figure out what your goal is? Is it to build
wealth quickly, at a moderate pace or at a slow pace? Once that is decided
the last main thing to consider is the risk you are willing to take. The highest
returns are general observed to come from the funds offering the highest
risks. So if you want returns quickly and are willing to take risks than that is
the fund to go for. If your objective is to build wealth slowly then going in for a
medium or low risk mutual fund is ideal.

Since mutual funds always come with a factor of risk associated with them, no
matter how small, it is imperative that investors read their policy documents
carefully before investing. It would also be a good idea to read the document
to ensure that they, the investors, have understood exactly what they have
invested in and all the facilities that are available to them with that investment.

Pay Attention to the Expense Ratio—It Can Make or Break You

It takes money to run a mutual fund. Things such as copies, portfolio

management, analyst salaries, coffee, office leases, and electricity have to be
taken care of before your cash can even be invested! The percentage of
assets that go toward these things—the management advisory fee and basic
operating expenses—is known as the expense ratio.

In short, it is the cost of owning the fund. Think of it as the amount a mutual
fund has to earn just to break even before it can even begin to start growing
your money.

All else being equal, you want to own funds that have the lowest possible
expense ratio. If two funds have expense ratios of 0.50 percent and
1.5 percent, respectively, the latter has a much bigger hurdle to beat before
money starts flowing into your pocketbook. Over time, these seemingly paltry
percentages can result in a huge difference in how your wealth grows. 

Avoid Mutual Funds with High Turnover Ratios

It’s important to focus on the turnover rate—that is, the percentage of the
portfolio that is bought and sold each year—for any mutual fund you are
considering. The reason is that age-old bane of our existence: taxes.

can take a huge bite out of the proverbial pie, especially if you are fortunate
enough to occupy the upper rungs of the income ladder. You should be wary
of funds that habitually turnover 50 percent or more of their portfolio.

Look for an Experienced, Disciplined Management Team

In this day of easy access to information, it shouldn’t be hard to find

information on your portfolio manager. If you find yourself holding a mutual
fund with a manager that has little or no track record or, even worse, a history
of massive losses when the stock market as a whole has performed well,
consider running as fast as you can in the other direction.

The ideal situation is a firm that is founded on one or more strong investment
analysts/portfolio managers that have built a team of talented and disciplined
individuals around them that are slowly moving into the day-to-day
responsibilities, ensuring a smooth transition

Finally, check to see if the managers have a substantial portion of their net
worth invested alongside the fund holders. It’s easy to pay lip service to
investors but it’s a different thing entirely to have your own capital at risk
alongside theirs.

Buy No-Load Mutual Funds

Some mutual funds charge what is known as a sales load. This is a fee,
usually around 5 percent of assets, that is paid to the person who sells you
the fund. It can be a great way to make money if you are a wealth manager,
but if you are putting together a portfolio, you should only buy no-load mutual

Work Toward Ample Diversification of Assets

Warren Buffett, known for concentrating his assets into a few key
opportunities, has said that for those who know nothing about the markets,
extreme diversification makes sense. It’s vitally important that if you lack the
ability to make judgment calls on a company’s intrinsic value, you spread your
assets out among different companies, sectors, and industries. Simply owning
four different mutual funds specializing in the financial sector, for example, is
not diversification. We’re something to hit those funds on the scale of the real-
estate collapse of the early 1990’s, your portfolio would be hit hard.

The Case for Index Funds

For the average investor who has a decade or longer to invest and wants to
regularly put aside money to compound over time, index funds can be a great
choice. They combine almost unfathomably low turnover rates with rock-
bottom expense ratios and widespread diversification; in other words, you
really can have your cake and eat it, too.

Check out Vanguard and Fidelity as they are the undisputed leaders in low-
cost index funds. Typically, look for an S&P 500 fund or other major indexes
such as the Wilshire 5000 or the Dow Jones Industrial Average.

International Funds

When you invest outside of the U.S., the costs are higher. But in the past,
stocks of foreign countries have shown low correlation with those in the
United States. When constructing portfolios designed to build wealth over
time, the theory is that these shares aren’t as likely to be hit hard when the
American equities are crashing (and vice versa.)

First, if you are going to venture into the international equity market by owning
a fund, you should probably only own those that invest in established
markets such as Japan, Great Britain, Germany, Brazil, and other stable
countries. The alternatives are emerging markets which pose far greater
political and economic risk, though they do offer potentially higher returns.

SEBI Guidelines to invest in Mutual Funds

SEBI keeps in place the regulatory framework and guidelines that govern and
regulate the financial markets in the country. The guidelines for investors are
listed below.

a) Assessment your personal financial situation

Mutual funds present the most diversified form of investment options and
therefore may carry a certain amount of risk factor with it. Investors must be
very clear in their assessment of their financial position and the risk-bearing
capacity in the event of poor performance of such schemes. Investors must,
therefore, consider their risk appetite in accordance with the investment
schemes.

b) Obtain researched information on the mutual funds’ investment

schemes

Before venturing into mutual fund investment, it is imperative for you as an

investor to obtain detailed information about the mutual fund scheme option.
Having the right information when required to make the necessary decision is
the key to making good investments. This may help in choosing the right
schemes, knowing the guidelines to follow and also be informed of the
investors’ rights.

c) Diversify your portfolios

Diversification of portfolios allows investors to spread out their investments

over various schemes thereby increasing chances of maximizing profits or
mitigating risk of potentially huge losses. Diversification is crucial to gaining
long-term and sustainable financial advantage.

d) Avoid the clutter of portfolios

Choosing the right portfolio of funds requires managing and monitoring these
schemes individually with care. The investor must not clutter the portfolio and
decide on the right number of schemes to hold so as to avoid overlap and be
able to manage each one of them equally well.

e) Assign a time dimension to the investment schemes

It is advisable for the investors to assign a time frame to each scheme to

encourage the financial growth of the plan. It may help in containing the
volatility and fluctuations in the market if the plans are maintained stably over
a period of time.

What is considered good diversification? Here are some rough guidelines:

  Don’t own funds that make heavy sector or industry bets. If you choose
to despite this warning, make sure that you don’t have a huge portion
of your funds invested in them.
 Don’t keep all of your funds within the same fund family. By spreading
your assets out at different companies, you can mitigate the risk of
internal turmoil, ethics breaches, and other localized problems.
 Don’t just think stocks. There are also real estate funds, international
funds, fixed income funds, arbitrage funds, convertible funds, and
much, much more. Although it is probably wise to have the core of your
portfolio in domestic equities over long periods of time, there are other
areas that can offer good returns.

MUTUAL FUND INDUSTRY IN INDIA

Indian mutual fund industry has registered a six-fold increase in AUM over the
last 10 years, it is yet to emerge as the preferred investment choice for retail
investors in India. More than 50 years have gone by since UTI started its first
sale in July 1964, and we believe that in the next few years, the industry will
perform closer to the original mandate of encouraging and mobilizing savings
of small investors. The confluence of emerging technology and enabling
regulation will facilitate the industry to broaden and deepen its reach amongst
retail investors.

• Evaluation of e-commerce platforms to sell mutual funds is currently

underway, and a positive outcome will help unlock the buying power of the
400mn Internet users and 1 bn mobile phone users in India;
• Financial inclusion has received a fillip with the JAM number trinity (Jan
Dhan, Aadhar& Mobile), and opening of 192mn Jan Dhan accounts in 15
months with a deposit base of Rs 27,000 crore. This builds the case for
evaluating adoption of a similar model and cross-selling opportunities;
• More clarity on E-KYC and its subsequent adoption will aid the
penetration amongst the hitherto un-served segment;
• The recently approved payment banks, with permission to sell third-party
mutual fund products are expected to improve the reach.
In the context of improving the financial literacy and awareness among retail
investors, AMCs have conducted around 60,000 investor awareness
programmes in the past 60-odd months across 500 cities in India, and have
reached out to 1.8mn participants. This is an ongoing initiative and is
expected to improve the low penetration of mutual funds in the Indian market.
With individual investors relying heavily on distributors for purchase of mutual
funds, AMCs will continue their focus on distribution network along with an
emphasis on increasing sale of direct plans. We believe that these enablers
will help the industry to increase its customer base in a cost-effective manner
from 42mn retail accounts and increase their ticket size. While these
measures will enable customer acquisition, AMCs need to focus on retaining
customers through sale of simpler products, demonstrating better fund
performance, better service quality and deployment of analytics. The industry
has witnessed consolidation, and the trend is expected to continue with
increasing focus on improving performance.

Reasons for Growth in Mutual Funds in India

• Player profile

More than 40 Asset Management Companies [AMC] have set up their

operations since the liberalization of the Indian economy in 1993. Currently,
44 AMCs are operating in India and these comprise private sector companies,
joint ventures (including those with foreign entities), bank-sponsored, etc. The
industry has a tiered structure with the top 7 AMCs having 70% of the industry
Asset under Management [AUM].

• Industry-level changes

The post-credit crisis period led to increased regulatory scrutiny in all

countries, including India. The recent SEBI directives and initiatives in the
mutual fund space can be categorized into three broad clusters:

A. Protecting the interests of investors by-

a. Introducing higher disclosures by AMC to promote transparency;

b. Implementing changes in commission structure to prevent mis-selling;

c. Merger of me-too schemes and denying approval to NFO issuances that do

not comply with this norm;

d. Introducing easy-to-understand riskometer infographics in product

brochures. The ‘riskometer’ with five levels of risks – low, moderately low,
moderate, moderately high, and high. This replaces the colour coding method,
which had only three levels - low, medium, and high.

B. Lowering cost and increasing reach by-

a. Incentivizing the sale of direct plans through differentiated TER for areas
other than T15;

b. Issuance of consolidated accounts statement;

c. Launch of MF utility portal and allowing investors to trade through a

Common Account Number;

C. Safeguarding the health of the industry by-

a. Mandating a compulsory increase in the capital base of AMCs from Rs

100mn to Rs 500mn by 2017;

b. Assessing the fixed costs of AMCs by proposing to analyze compensation

details, of fund managers and senior management. Presently, mutual funds
can spend a maximum of 2.5% of the AUM as expenses, which they recover
from investors;

c. Conducting regular stress tests.

REGULATORY BODY FOR MUTUAL FUNDS IN INDIA

 SEBI

Securities and Exchange Board of India (SEBI) was first established in 1988
as a non-statutory body for regulating the securities market. It became an
autonomous body on 12 April 1992 and was accorded statutory powers with
the passing of the SEBI Act 1992 by the Indian Parliament. Soon SEBI was
constituted as the regulator of capital markets in India under a resolution of
the Government of India. SEBI has its headquarters at the business district of
Bandra Kurla Complex in Mumbai and has Northern, Eastern, Southern and
Western Regional Offices in New Delhi, Kolkata, Chennai, and Ahmedabad
respectively. It has opened local offices at Jaipur and Bangalore and has also
opened offices at Guwahati, Bhubaneshwar, Patna, Kochi and Chandigarh.

Controller of Capital Issues was the regulatory authority before SEBI came
into existence; its derived authority from the Capital Issues (Control) Act,
1947.

The SEBI is managed by its members, which consists of the following:

 The chairman is nominated by the Union Government of India.

 Two members, i.e., Officers from the Union Finance Ministry.
 One member from the Reserve Bank of India.
 The remaining five members are nominated by the Union Government
of India, out of them at least three shall be whole-time members.

After the amendment of 1999, collective investment schemes were brought

under SEBI except nidhis, chit funds and cooperatives.

Functions and Responsibilities

The Preamble of the Securities and Exchange Board of India describes the
basic functions of the Securities and Exchange Board of India as "...to protect
the interests of investors in securities and to promote the development of, and
to regulate the securities market and for matters connected there with or
incidental there to".

SEBI has to be responsive to the needs of three groups, which constitute the
market:

 issuers of securities
  investors
 market intermediaries

SEBI has three functions rolled into one body: quasi-legislative, quasi-

judicial and quasi-executive. It drafts regulations in its legislative capacity, it
conducts investigation and enforcement action in its executive function and it
passes rulings and orders in its judicial capacity. Though this makes it very
powerful, there is an appeal process to create accountability. There is a
Securities Appellate Tribunal which is a three-member tribunal and is currently
headed by Justice Tarun Agarwala, former Chief Justice of the Meghalaya
High Court. A second appeal lies directly to the Supreme Court. SEBI has
taken a very proactive role in streamlining disclosure requirements to
international standards

Powers

For the discharge of its functions efficiently, SEBI has been vested with the
following powers:

 to approve by−laws of Securities exchanges.

 to require the Securities exchange to amend their by−laws.
 inspect the books of accounts and call for periodical returns from
recognized Securities exchanges.
 inspect the books of accounts of financial intermediaries.
 compel certain companies to list their shares in one or more Securities
exchanges.
 registration of Brokers and sub-brokers

Committees

 Technical Advisory Committee

 Committee for review of structure of infrastructure institutions
 Advisory Committee for the SEBI Investor Protection and Education
Fund
 Takeover Regulations Advisory Committee
  Primary Market Advisory Committee (PMAC)
 Secondary Market Advisory Committee (SMAC)
 Mutual Fund Advisory Committee
 Corporate Bonds & Securitisation Advisory Committee

Important steps taken by SEBI for the regulation of mutual funds

(1) Formation:

Certain structural changes have also been made in the mutual fund industry,
as part of which mutual funds are required to set up asset management
companies with fifty percent independent directors, separate board of trustee
companies, consisting of a minimum fifty percent of independent trustees and
to appoint independent custodians.

This is to ensure an arm’s length relationship between trustees, fund

managers and custodians, and is in contrast with the situation prevailing
earlier in which all three functions were often performed by one body which
was usually the sponsor of the fund or a subsidiary of the sponsor.

Thus, the process of forming and floating mutual funds has been made a
tripartite exercise by authorities. The trustees, the asset management
companies (AMCs) and the mutual fund shareholders form the three legs.
SEBI guidelines provide for the trustees to maintain an arm’s length
relationship with the AMCs and do all those things that would secure the right
of investors. With funds being managed by AMCs and custody of assets
remaining with trustees, an element of counter-balancing of risks exists as
both can keep tabs on each other.

(2) Registration:

In January 1993, SEBI prescribed registration of mutual funds taking into

account track record of a sponsor, integrity in business transactions and
financial soundness while granting permission.
This will curb excessive growth of the mutual funds and protect investor’s
interest by registering only the sound promoters with a proven track record
and financial strength. In February 1993, SEBI cleared six private sector
mutual funds viz. 20th Century Finance Corporation, Industrial Credit &
Investment Corporation of India, Tata Sons, Credit Capital Finance
Corporation, CEAT Financial Services and Apple Industries.

(3) Documents:

The offer documents of schemes launched by mutual funds and the scheme
particulars are required to be vetted by SEBI. A standard format for mutual
fund prospectuses is being formulated.

(4) Code of advertisement:

Mutual funds have been required to adhere to a code of advertisement.

(5) Assurance on returns:

SEBI has introduced a change in the Securities Control and Regulations Act
governing the mutual funds. Now the mutual funds were prevented from
giving any assurance on the land of returns they would be providing.
However, under pressure from the mutual funds, SEBI revised the guidelines
allowing assurances on return subject to certain conditions.

Hence, only those mutual funds which have been in the market for at least
five years are allowed to assure a maximum return of 12 per cent only, for one
year. With this, SEBI, by default, allowed public sector mutual funds an
advantage against the newly set up private mutual funds.

As per basic tenets of investment, it can be justifiably argued that investments

in the capital market carried a certain amount of risk, and any investor
investing in the markets with an aim of making profit from capital appreciation,
or otherwise, should also be prepared to bear the risks of loss

(6) Minimum corpus:

The current SEBI guidelines on mutual funds prescribe a minimum start-up
corpus of Rs.50 crore for a open-ended scheme, and Rs.20 crore corpus for
closed-ended scheme, failing which application money has to be refunded.

The idea behind forwarding such a proposal to SEBI is that in the past, the
minimum corpus requirements have forced AMCs to solicit funds from
corporate bodies, thus reducing mutual funds into quasi-portfolio management
outfits. In fact, the Association of Mutual Funds in India (AMFI) has repeatedly
appealed to the regulatory authorities for scrapping the minimum corpus
requirements.

(7) Institutionalization:

The efforts of SEBI have, in the last few years, been to institutionalise the
market by introducing proportionate allotment and increasing the minimum
deposit amount to Rs.5000 etc. These efforts are to channel the investment of
individual investors into the mutual funds.

(8) Investment of funds mobilized:

In November 1992, SEBI increased the time limit from six months to nine
months within which the mutual funds have to invest resources raised from
the latest tax saving schemes. The guideline was issued to protect the mutual
funds from the disadvantage of investing funds in the bullish market at very
high prices and suffering from poor NAV thereafter.

(9) Investment in money market:

SEBI guidelines say that mutual funds can invest a maximum of 25 per cent of
resources mobilized into money-market instruments in the first six months
after closing the funds and a maximum of 15 per cent of the corpus after six
months to meet short term liquidity requirements.
Private sector mutual funds, for the first time, were allowed to invest in the call
money market after this year’s budget. However, as SEBI regulations limit
their exposure to money markets, mutual funds are not major players in the
call money market. Thus, mutual funds do not have a significant impact on the
call money market.

(10) Valuation of investment:

The transparent and well understood declaration or Net Asset Values (NAVs)
of mutual fund schemes is an important issue in providing investors with
information as to the performance of the fund. SEBI has warned some mutual
funds earlier of unhealthy market

(11) Inspection:

SEBI inspect mutual funds every year. A full SEBI inspection of all the 27
mutual funds was proposed to be done by the March 1996 to streamline their
operations and protect the investor’s interests. Mutual funds are monitored
and inspected by SEBI to ensure compliance with the regulations.

(12) Underwriting:

In July 1994, SEBI permitted mutual funds to take up underwriting of primary

issues as a part of their investment activity. This step may assist the mutual
funds in diversifying their business.

(13) Conduct:

In September 1994, it was clarified by SEBI that mutual funds shall not offer
buy back schemes or assured returns to corporate investors. The Regulations
governing Mutual Funds and Portfolio Managers ensure transparency in their
functioning.

(14) Voting rights:

In September 1993, mutual funds were allowed to exercise their voting rights.
Department of Company Affairs has reportedly granted mutual funds the right
to vote as full-fledged shareholders in companies where they have equity
investments.

 AMFI

The Association of Mutual Funds in India (AMFI) is dedicated to developing

the Indian Mutual Fund Industry on professional, healthy and ethical lines and
to enhance and maintain standards in all areas with a view to protecting and
promoting the interests of mutual funds and their unit holders. AMFI, the
association of all the Asset Management Companies of SEBI registered
mutual funds in India, was incorporated on August 22, 1995, as a non-profit
organization. As of now, all the 45 Asset Management Companies that are
registered with SEBI.

Objectives

 To define and maintain high professional and ethical standards in all

areas of operation of mutual fund industry.
 To recommend and promote best business practices and code of
conduct to be followed by members and others engaged in the
activities of mutual fund and asset management including agencies
connected or involved in the field of capital markets and financial
services.
 To interact with the Securities and Exchange Board of India (SEBI) and
to represent to SEBI on all matters concerning the mutual fund
industry.
 To represent to the Government, Reserve Bank of India and other
bodies on all matters relating to the Mutual Fund Industry.
 To undertake nationwide investor awareness programme so as to
promote proper understanding of the concept and working of mutual
funds.
 To disseminate information on Mutual Fund Industry and to undertake
studies and research directly and/or in association with other bodies.
  To take regulate conduct of distributors including disciplinary actions
(cancellation of ARN) for violations of Code of Conduct.
 To protect the interest of investors/unit holders.

Top 15 Best Mutual Funds to Invest In 2020-21 | Best Sip

Equity Funds

 UTI Nifty Index Fund (Large-cap)

 Axis Blue-chip Fund (Large-cap)
 ICICI Prudential Blue-chip Fund (Large-cap)
 Kotak Standard Multi-cap Fund (Diversified)
 Aditya Birla Sun Life Equity Fund (Diversified)
 SBI Magnum Multi cap Fund (Diversified)
 Axis Mid-cap Fund (Mid-cap)
 Franklin India Prima Fund (Mid-cap)
 Franklin Smaller Companies Fund (Small-cap)
 Axis Long Term Equity Fund (ELSS – Tax Saving)
 Invesco India Tax Plan (ELSS – Tax Saving)
 Aditya Birla Sun Life Tax Relief ’96 Fund (ELSS – Tax Saving)
 HDFC Hybrid Equity Fund
 ICICI Prudential Equity & Debt Fund
 SBI Equity Hybrid Fund

AVERAGE ASSETS UNDER MANAGEMENT

Assets under management (AUM) is a financial term denoting the market
value of all the funds being managed by a financial institution (a mutual fund,
hedge fund, private equity firm, venture capital firm, or brokerage house) on
behalf of its clients, investors, partners, depositors, etc.
The average assets under management of all mutual funds in India for the
quarter Dec 2015 to Mar 2016 (in ₹ Lakh) is given below:

Mutual Total QAAUM Prev Inc/De

Fund Scheme AUM (₹ QAAUM c (₹ Percentage
Name s Lakh.) (₹ Lakh.) Lakh.)

Axis Asset
Managemen 263 3776454.37 3456348.88 320105 9%
t Company

Baroda
Pioneer
Asset 111 965630.33 925542.12 40132 4%
Managemen
t Company
 Mutual Total QAAUM Prev Inc/De
Fund Scheme AUM (₹ QAAUM c (₹ Percentage
Name s Lakh.) (₹ Lakh.) Lakh.)

Birla Sun
Life Asset 13684493.3
806 13678510.7 5312 0%
Managemen 4
t Company

BNP Paribas
Asset
114 509706.79 500795.21 9209 2%
Managemen
t Company

BOI AXA
Asset
76 238501.41 242767.91 2887 1%
Managemen
t Company

Canara
Robeco
Asset 142 804326.86 751779.86 52627 7%
Managemen
t Company

Pramerica
Investment
8 27698 17194 10504 61%
Managemen
t

DHFL
Pramerica
Asset 491 2598683.24 216345 -80979 -37%
Managemen
t Company

DSP Asset
Managemen 398 4015131.25 3918267.17 96865 2%
t Company

Edelweiss 70 167774.29 163236.28 4538 3%

Asset
Managemen
 Mutual Total QAAUM Prev Inc/De
Fund Scheme AUM (₹ QAAUM c (₹ Percentage
Name s Lakh.) (₹ Lakh.) Lakh.)

t Company

Escorts
Asset
60 28559.18 29222.27 -663 -2%
Managemen
t Company

Franklin
Templeton
Asset 200 6784076.49 7172216.54 -384257 -5%
Managemen
t Company

Goldman
Sachs Asset
18 610139.99 685179.35 -75039 -11%
Managemen
t Company

HDFC Asset
17866622.2
Managemen 1173 17608456.44 -256390 -1%
4
t Company

HSBC
Global Asset
155 790382.19 837762.82 -47151 -6%
Managemen
t Company

ICICI
Prudential
Asset 1529 17596397.6 17223699 390751 2%
Managemen
t Company

IDBI Asset
Managemen 92 689266.37 756428.17 -67162 -9%
t Company

IDFC Asset 453 5228379.46 5486421.83 -249600 -5%

Managemen
 Mutual Total QAAUM Prev Inc/De
Fund Scheme AUM (₹ QAAUM c (₹ Percentage
Name s Lakh.) (₹ Lakh.) Lakh.)

t Company

IIFCL Asset
Managemen 1 35797.56 34293.89 1504 4%
t Asset

IIFL Asset
Managemen 18 48543.76 42203.84 6340 15%
t Company

IL & FS Infra
Asset
12 92296.34 90029.5 2267 3%
Managemen
t Company

Indiabulls
Asset
56 528955.04 491675.45 37279 8%
Managemen
t Company

JM Financial
Asset
179 1616090.42 1586776.74 29313 2%
Managemen
t

Kotak
Mahindra
Asset 431 5873108.27 5513383.02 362464 7%
Managemen
t Company

L&T Asset
Managemen 246 2594480.1 2505850.82 89990 4%
t Company

LIC Nomura 176 1315562.4 1238408.04 92942 8%

Mutual Fund
Asset
Managemen
 Mutual Total QAAUM Prev Inc/De
Fund Scheme AUM (₹ QAAUM c (₹ Percentage
Name s Lakh.) (₹ Lakh.) Lakh.)

t Company

Mirae Asset
Managemen 55 313272.14 280239.04 33101 12%
t Company

Motilal
Oswal Asset
31 468921.13 455222.64 14103 3%
Managemen
t Company

Peerless
Asset
57 98524.1 102441.7 -3917 -4%
Managemen
t Company

PPFAS
Asset
1 61357.1 62931.88 -1575 -3%
Managemen
t Company

Principal
Asset
123 528106.02 587875.66 -59770 -10%
Managemen
t Company

Quantum
Asset
15 66093.04 65531.63 561 1%
Managemen
t Company

Reliance
Asset 15787817.3
1015 15936949.34 152561 1%
Managemen 6
t Company

Religare 267 1959617.91 1988459.31 -28622 -1%

Global Asset
Managemen
 Mutual Total QAAUM Prev Inc/De
Fund Scheme AUM (₹ QAAUM c (₹ Percentage
Name s Lakh.) (₹ Lakh.) Lakh.)

t Company

Sahara
Asset
68 9929.16 11002.32 -758 -7%
Managemen
t Company

SBI Asset
10058453.6
Managemen 652 10732737.36 672760 7%
9
t Company

Shriram
Asset
4 3716.98 3711.53 5 0%
Managemen
t Company

Sundaram
Asset
479 2366370.94 2187696.57 185302 8%
Managemen
t Company

Tata Asset
Managemen 324 3186223.17 3155590.09 26752 1%
t Company

Taurus
Asset
65 394858.04 350334.19 44524 13%
Managemen
t Company

Union KBC
Asset
60 290228.21 273213.25 17015 6%
Managemen
t Company

UTI Asset
10612903.5
Managemen 1220 10630921.82 16124 0%
2
t Company
 Mutual Total QAAUM Prev Inc/De
Fund Scheme AUM (₹ QAAUM c (₹ Percentage
Name s Lakh.) (₹ Lakh.) Lakh.)

132170477.
Gross 11856 135912187.2
1

Mutual Fund Acquisitions

Seller Acquired By Year

Pioneer ITI MF Franklin Templeton 2002

Zurich India AMC HDFC MF 2003

Alliance Capital MF Birla Sunlife 2005

Standard Chartered IDFC 2008

AIG Global Investment Group

PineBridge MF 2011
MF

Benchmark Mutual Fund Goldman Sachs 2011

Fidelity L&T Finance 2012

Morgan Stanley's MF HDFC MF 2013

PineBridge MF Kotak MF 2014

ING Mutual Fund Birla Sunlife 2014

Daiwa AMC SBI MF 2013

 Seller Acquired By Year

Goldman Sachs Reliance MF 2015

Deutsche Pramerica 2015

JP Morgan Edelweiss 2016

Chapter: - 2
RESEARCH METHODOLOGY

This report is based on primary as well secondary data, however primary data
collection was given more importance since it is overhearing factor in attitude
studies. One of the most important users of research methodology is that it
helps in identifying the problem, collecting, analyzing the required information
data and providing an alternative solution to the problem .It also helps in
collecting the vital information that is required by the top management to
assist them for the better decision making both day to day decision and critical
ones

OBJECTIVES OF THE STUDY

 To find out the Preferences of the investors for Asset Management

Company.
 To know the Preferences for the portfolios.
  To know whether investors prefer public or private sector Mutual
Funds.
 To find out the factors that influence in selection of Mutual funds.
 To find out what should do to boost Mutual Fund Industry.

HYPOTHESIS:

The hypothesis of study framed is as follows:

1.

H0: There is no significant relationship between Gender and Investment Done

in Mutual Fund.

H1: There is significant relationship between Gender and Investment done in

Mutual Fund.

2.

H0: There is no significant relationship between Types of Mutual Fund

Scheme and Expected Returns on Investment.

H1: There is significant relationship between Types of Mutual Fund and

Expected Returns on Investment.

3.

H0: There is no significant relationship between Age Group and Investment

done in Mutual Funds.

H1: There is significant relationship between Age Group and Investment done
in Mutual Funds.

DATA SOURCES:

Research is totally based on primary data. Secondary data can be used only
for the reference. Research has been done by primary data collection, and
primary data has been collected by interacting with various people. The
secondary data has been collected through various journals and websites.

SCOPE OF STUDY: -
This study revolves about different types of Mutual funds available to
investors in India. It also describes about various Intermediaries linked to
Mutual investments like AMC, AMFI, Banks, Registrars, etc. This research
can help to gain knowledge about Mutual Investment Strategies and various
terms related to Mutual funds.

LIMITATIONS OF STUDY: -

The present study was undertaken to maximize objective and minimize error.
However, there are certain limitations of the study which are to be taken into
considerations for the present work. Some of the people were not responsive.
Possibility of error in data collection because many of investors may have not
given actual answer to the question.

SIGNIFICANCE OF STUDY: -

With increasing awareness about various Investments instruments, people

are opting a new investment instruments like Mutual funds rather than
traditional ones. So, it is important to know various means through one can
invest money in Mutual Funds. It is also important to know mutual Funds
Advantages and Disadvantages as well as points to remember while investing
in Mutual Funds.

SELECTION OF THE PROBLEM: -

The study on Mutual Fund has been selected in order to study and examine
the progress Mutual Fund in India

SAMPLE SIZE: -

The sample size of my project is limited to 50 respondents as the survey has

been taken on a small scale.
 Chapter 3
LITERATURE REVIEW

Gayathri, S., Karthika, S. & Kumar, Gajendran L. (2010) reviewed on

Mutual Funds in India are financial instruments. A mutual fund 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. The owner of a mutual
fund unit gets a proportional share of the fund’s gains, losses, income
and expenses. Mutual Fund is vehicle for investment in stocks and
Bonds. Each mutual fund has a specific stated objective. The fund’s
objective is laid out in the fund's prospectus, which is the legal document
that contains information about the fund, its history, its officers and its
performance. Some popular objectives of a mutual fund are: Fund
Objective - What the fund will invest in; Equity (Growth) - Only in stocks;
Debt (Income); Only in fixed-income securities; Money Market (including
Gilt) - In short-term money market instruments (including government
securities); Balanced - Partly in stocks and partly in fixed-income
securities, in order to maintain a 'balance' in returns and risk. The share
value of the Mutual Funds in India is known as net asset value per share
(NAV). The NAV is calculated on the total amount of the Mutual Funds in
India, by dividing it with the number of shares issued and outstanding
shares on daily basis. The company that puts together a mutual fund is
called an AMC. 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. The Securities and Exchange Board of India (SEBI)
mutual fund regulations require that the fund’s objectives are clearly
spelt out in the prospectus. In addition, every mutual fund has a board of
directors that is supposed to represent the shareholders' interests, rather
than the AMC’s.

Rao, D. N. and Rao, S. B. (2009) has conducted research on the

general perceptions/commonly held belief among Indian Investors and
Fund Managers are that (A) Market outperforms Balanced and Income
Funds during Bull run (B) Balanced and Income Funds outperform the
stock market during Bear run (C) Market outperforms Balanced and
Income Funds over a long holding period (a minimum period of three
years). The objective of the study was to empirically investigate whether
the above stated perceptions are valid in the Indian context. For this
purpose, six hypotheses were tested.

Deb, Soumya G., Banerjee, A. & Chakrabarti, B. B. (2007) in this

paper author’s conducted a study on return based style analysis of
equity mutual funds in India using quadratic optimization of an asset
class factor model proposed by William Sharpe. We found the 'style
benchmarks' of each of our sample of equity funds as optimum exposure
to eleven passive asset class indexes. We also analyzed the relative
performance of the funds with respect to their style benchmarks. Our
results show that the funds have not been able to beat their style
benchmarks on the average.

Rao, D. N. (2006) The study classified the 419 open-ended equity

mutual fund schemes into six distinct investment styles, analyzed the
financial performance of select open-ended equity mutual fund schemes
for the period 1st April 2005 - 31st March 2006 pertaining to the two
dominant investment styles and tested the hypothesis whether the
differences in performance are statistically significant. The variables
chosen for analyzing financial performance are: monthly compounded
mean return, risk per unit return and Sharpe ratio. A comparison of the
financial performance of the 21 Open-ended Equity growth plans and 21
Open-ended Equity dividend plans was made in terms of the chosen
variables.

Sapar, Narayan R. & Madava, R. (2003) In this paper conducted a

research on the performance evaluation of Indian mutual funds in a bear
market is carried out through relative performance index, risk-return
analysis, Treynor's ratio, Sharp's ratio, Sharp's measure, Jensen's
measure, and Fama's measure. The data used is monthly closing NAVs.
The source of data is website of Association of Mutual Funds in India
(AMFI). Study period is September 98-April 02 (bear period). We started
with a sample of 269 open ended schemes (out of total schemes of 433)
for computing relative performance index.

Borensztein, E. and Gelos, G. (2001) this paper explores the behavior

of emerging market mutual funds using a novel database covering the
holdings of individual funds over the period January 1996 to March
1999. An examination of individual crises shows that, on average, funds
withdrew money one month prior to the events. The degree of herding
among funds is statistically significant, but moderate. Herding is more
widespread among open-ended funds than among closed-end funds, but
not more prevalent during crises than during tranquil times. Funds tend
to follow momentum strategies, selling past losers and buying past
winners, but their overall behavior is more complex than often
suggested.

Block, Stanley B. and French, Dan W. (2000) conducted a study on

Portfolios of equity mutual funds tend to be equally weighted to a greater
degree than they are value weighted according to metrics of fund
weightiness developed in this paper. Measures of fund investment
performance based solely on a single value-weighted or equally
weighted benchmark may therefore not adequately identify significant
excess performance. We propose a two-index model using both a value-
weighted and an equally weighted index. Estimated models using a
sample of 506 mutual funds show that the two-index model provides a
better fit than the single-index model and identifies a larger set of funds
with abnormal performance.

CASE STUDIES

CASE STUDY 1

Why Some Mutual Funds Do Not Generate Consistent Returns?

The performance of a mutual fund scheme is linked to various factors ---
internal and external. So, when you assess the performance of a mutual fund
scheme, it is important to look beyond just the returns and short-term
aberrations. In the short-term, the bouts of volatility would, of course, weigh
on the scheme’s returns. But recognizing if the scheme has been able to
manage the downside, particularly in case of an equity mutual fund, is equally
important to assess the risk the fund exposed you to.

When you invest in mutual funds, every investment decision that the fund
manager of a mutual fund takes involves a degree of risk. Hence, it is also
important to pay attention to portfolio characteristics of a mutual fund scheme,
as the fortune of a mutual fund scheme is closely linked to the portfolio it
holds. If the portfolio characteristics of the scheme are not up to the mark, it
could show up in inconsistent returns. The fact is, very few investors dispute
the importance of a fund manager when it comes to investing in a mutual fund
scheme. They hinge the performance of a respective scheme to the fund
manager. You may have experienced your mutual fund distributor/agent/
relationship manager trying to persuade you to invest in mutual fund
schemes, merely because the respective mutual fund scheme is managed by
a star fund manager.

Remember, fund managers don’t have a magic wand. And even if they do,
over-dependency would not be the right approach. It is important for the fund
manager to respect the mandate of the scheme and invest accordingly, not as
per their whims and fancies. If they have indulged in momentum playing in the
ndeavor to clock alpha, but if their bets fall through, it would obviously have a
bearing on fund’s returns making them look inconsistent.
Ideally, the fund manager should not be indulging in excessive portfolio
churning (like traders), but build and hold the portfolio with conviction (like
long-term investors).
When you invest in mutual funds, judge the investment processes and
systems followed by the fund house to make the right investment decisions.
So, do take note of the following:
Delve a little deeper in understanding the fund house’s investment philosophy;
Check whether a fund house has a dedicated research team backing its
investment decisions or if stock picking is done based on whims and fancies
of the fund manager;
Weigh the investor services and the degree of transparency, which is also
vital for you as an investor; and
Be wary of fund houses which act as asset gatherers in their race to garner
more Assets Under Management (AUM) rather than being prudent asset
managers.
Your investment success will not depend on how much the Assets Under
Management (AUM) of the scheme or the fund house is, but how well those
assets (hard-earned money of investors) are managed. Hence, paying
attention to the proportion of AUM of the fund house is actually performing, is
necessary.
Fund houses that follow robust investment processes & systems can manage
the downside better and hold the potential of generating attractive returns in
the long run.

Further, note that every mutual fund scheme follows a particular investment
style, market capitalization based on its objective and pre-defined strategy.
And each investment style has its own cycle. So, a top-performing fund that
made the best in a bull phase of its investment style may end up among the
laggards, if the style enters the unfavourable phase. This also results in an
inconsistent performance.

CASE STUDY 2

Are Small-Cap Funds an Attractive Proposition Now?

It is true that small-caps have been hammered since February 2018. And
lately, in the last couple of months, small-caps have recovered backed by a
'hope rally'--as the exit polls predict a second term for the Modi-led-NDA
government.
The return potential small-caps offer is immense, but at the same time, the
risk involved is also very high compared to large and mid-caps.
This is because of small-cap companies possess the following traits:
 Limited scale of operations;
 Narrow product line;
 Narrow distribution channel;  
 Limited financial and managerial resources; and
 Greater sensitivity to underlying dynamic economic conditions.
Any adverse economic conditions or any policy changes from the government
of greater magnitude can have an undesirable impact on the business of
small-cap companies, and in turn on their bottom-line.
On the other hand, when the economy is booming and business is on an
upswing, small-cap companies do quite well in terms of revenue growth and
profits; and sometimes even outpace the larger companies by a noteworthy
margin.

So, small-caps have the tendency to go from thrilling highs to dangerous lows.
A small-cap mutual fund scheme, as defined by the capital market regulator,
is required to invest a minimum of 65% of its total assets in equity & equity
related instruments of small-cap companies.
Small-cap companies as defined by the capital market regulator are those
companies that fall beyond the 250th stock in terms of full market
capitalization.

Should you invest in a small-cap fund?

Investing in a small-cap fund is not for the faint-hearted. As an investor, you
need to be wary of the high volatility and have an appetite for very high risk.
Only if your investment time horizon is over 10 years, while you endeavour to
boost your long-term returns, you may consider investing some portion in a
small-cap fund.
How have small-cap funds fared?
Absolute
CAGR (%)
Scheme Name (%)
1 Year 3 Years5 Years

Category Average Returns of Small-cap

-11.7 11.1 16.4
Schemes

Nifty Small cap 250 - TRI -15.5 8.7 10.9

S&P BSE Small-Cap - TRI -16.3 10.3 11.8

Data as on May 20, 2019
Note: Direct Plans considered and the returns are on a point-to-point basis.
(Source: ACE MF)

In the small-cap fund category, there only a handful of schemes that have
completed a 10-year track record. And only a couple of schemes are worth
considering.
Over the last five years, small-cap funds on an average have generated a
compounded annualized return of nearly 16%. However, some worthy
schemes have outperformed the category average returns and the benchmark
indices by a wide margin.
Remember not to pick small-cap funds by:
 Giving importance to the short-term market outlook
 Relying blindly on star-ratings
 Depending extensively on the recent past track-record of a scheme
 Disregarding qualitative aspects associated with mutual fund selection
 Ignoring your personalized asset allocation
 Seeking advice from friends and relatives, who may not be competent
enough to advise you on  the best mutual funds
Chapter 4
DATA ANALYSIS, INTERPRETATION & PRESENTATION

1. DATA PRESENTATION

(a) Age distribution of the Investors in Mutual Funds.

Age Group 20-.30 30-40 40-50 50-60 60 and

 Years Years Years Years Above
No. of 25 15 13 19 1
Investors

Interpretation:

According to this Pie Diagram out of 74 Mutual Fund investors of the

most are in the age group of 20-30 yrs. i.e. 35%, the second most
investors are in the age group of 30-40 years i.e. 25% and the least
investors are in the age group of below 30 yrs.

b. Gender

Gender Count
Male 48
Female 26
Total 74
Interpretation:

Out of 74 Responses, 62.2% investors are Male. And 37.8% of investors

are Female.

c. Investors invested in Mutual Funds

Response Number of Respondents

YES 48
NO 26
 TOTAL 74

Interpretation:

Out of 74 people, 64. 9% people have invested in Mutual Funds and 35.1%
have not invested in Mutual Funds.

d. Name of the Mutual Fund Invested by investors

Interpretation:

Investors preferred Franklin India Primax & Franklin Templeton who have the
share of 4.7%. Other Blue-Chip Companies such as SBI, AXIS, HDFC, ICICI
and Sundaram have a similar share of 2.3%. LIC MUTUAL FUNDS also have
a share of 2.3%.

e. Do investors intend to invest in Mutual Funds

Interpretation:

Out of 74 responses, 56 said that they do intend to invest in Mutual Funds

which is 77% and 17 said they do not intend to invest in Mutual Funds which
is 23%.
f. Which form of investment does Investors prefer.

Interpretation:

Out of 74 responses, 28.4% said that they prefer Mutual Funds as an

investment. 18.9% said they prefer Fixed Deposits and Recurring Deposits
as investments. preferred by them. 4.1% choose PPF’s as their choice of
investments.

g. Most preferred basis before any investment made by investors.

Interpretation:
Out of 74 responses, 43.8% said that they prefer Safety of their Investments
as a Priority before taking any investment decisions. 24.7% said they prefer
High Returns on Investments. 19.2% would want their Investments to be
reliable. 6.8% would prefer their Investment to be easily liquidated. And 5.5%
would like to have Tax Benefits.

h. What type of Mutual Fund Scheme is Preferred.

 Type of Scheme Number
Tax Benefit 8
Equity (Growth & Dividend) 46
Debt (Income) 6
Balanced 14
Total 74

Interpretation:
Out od 74 responses, 62.2% of investors prefer Equity (Growth and Dividend)
Funds. 18.9% investors would like to prefer investing in Balanced Funds.
10.8% would like to avail Tax Benefits by investing in Tax Saving Mutual
Funds. 8.1% would invest in Debt (Income) Funds.
i. Source of information which is influential for Investment in Mutual
Funds.

Source of Information Number of Investors

Financial Advisors 33
Friends/Relatives advice 18
TV/Internet 11
Newspapers/ Financial Journals 10
Brokers 1
Value Research Sites 1
Total 74

Interpretation:
Out of 74 Responses, 44.6% of investors were influenced by their Financial
Advisors for investing in Mutual Funds. 24.3% of investors invested with the
help of their Friends or Relatives Advice. 14.9% have invested in Mutual
Funds with the help of TV Advertisement and Internet Finding. 13.5% have
invested with the help of information provided from Newspapers and Financial
Journals. 1.4% from Brokers and Value Research Sites.
j. Expectations on returned from Investment of Mutual Funds.

Returns Expected Number of Investors

Very High 4
High 15
Average 25
Low 3
Very Low 1
Total 48

Interpretation:
Out of 46 investors who have invested in Mutual Funds 39.7% had High
Returns. 50.8% had Average Returns from Mutual Funds. 4.8% investors
received Low Returns from Mutual Funds. 3.2% investors received Very High
Returns from Mutual Funds. 1.6% investors received Very Low returns from
Mutual Funds.
k. Major Factors which Influence investors to invest in particular Mutual
Funds.

Other Factors Number of Investors

Growth Prospects 14
Market Fluctuations 11
Organizational Influence 10
Credit Rating 8
Net Asset Value 8
Return Dividend 7
Tax Shield 6
Size of Fund 8
Brokers Advise 1
Exit Fees 1
Total 74

Interpretation:
Out of 74 Responses, 18.9% investors will only invest in a particular Mutual
Fund if the Growth Prospectus are aspiring. 14.9% investors will invest
according to Market Fluctuations. 13.5% will invest if the Organization has a
Positive Influence. 10.8% investors will invest in a Mutual Fund according to
its Fund Size and Credit rating respectively. 9.5% on the basis of
Return/Dividends. 8.1% if the Mutual Fund provides Tax Shield. Exit Fees and
Brokers Advise is taken into consideration before investing at 1.4% each.
l. Does Private Sector Mutual Fund perform better than Public Sector.

Likert Scaling Number of Respondents

Strongly Agree 11
Agree 27
Neutral 30
Disagree 4
Strongly Disagree 2
Total 74

Interpretation:
Out of 74 Responses, 14.9% Strongly Agree with Private Sector performs
better than Public Sector. 40.5% of investors were Neutral about Private
Sector performing better than Public Sector Mutual Funds. 36.5% of Investors
Agree Private Sectors Mutual Funds perform Better than Public Sector Mutual
Funds. 5.4% Disagree and 2.7% Strongly Disagree with the above Statement.
m. Is Mutual Fund useful for Small Investors.

Likert Scaling Number of Respondents

Strongly Agree 18
Agree 32
Neutral 18
Disagree 5
Strongly Disagree 1
Total 74

Interpretation:
Out of 74 Responses, 24.3% Strongly Agree that Mutual Funds is for Small
Investors. 43.2% Agree that Mutual Fund is for Small Investors. 24.3% have
Neutral views on this Statement. 24.3% Strongly Disagree that Mutual Funds
is for Small Investors.
n. Investing in Mutual Fund feel like owning any other Asset.

Likert Scaling Number of Respondents

Strongly Agree 12
Agree 28
Neutral 20
Disagree 11
Strongly Disagree 3
Total 74

Interpretation:
Out of 74 Responses, 16.2% Strongly Agree on investing in Mutual Fund is
similar to owning an Asset. 37.8% Agree that a Mutual Fund is similar to an
Asset. 27% have Neutral views on this statement. 14.9% Disagree and 4.1
Strongly Disagree on this calling Mutual Fund as a Asset.
o. Reasons behind not Investing Mutual Funds in India.

Reasons for not Investing Number of Respondents

Not able to Understand the intricacies of Mutual Funds 26
Market Volatility 17
Ambiguity 4
Poor Performance of Previous Funds 13
Ignorance 14
Total 74

Interpretation:
Out of 74 Responses, 35.1% believe that people don’t invest in India because
they unable to Understand the Intricacies of Mutual Funds. 23% think its
because of Market Volatility. 18.9% because of Ignorance and Lack of
Awareness people may not invest in Mutual Fund. 17.6% due to Poor
Performance of Previous Funds and would fear to reinvest. 5.4% due to
Ambiguity.

2. PROVING OF HYPOTHESIS
1.

H0: There is no significant relationship between Gender and Investment Done

in Mutual Fund.

H1: There is significant relationship between Gender and Investment done in

Mutual Fund.

SOLUTION:

BY ANOVA

Anova Test: Single Factor

Gender and Investment in Mutual Fund.

SUMMARY
Groups Count Sum Averag Varianc
e e
Column 1 2 48 24 200
Column 2 2 26 13 2

ANOVA
Source of SS df MS F P-value F critical
Variation
Between 121 1 121 1.19802 0.387944 18.51282
Groups
Within 202 2 101
Groups

Total 323 3        

f=0.387944

f is > 0.05 we accept H0 and reject H1 and otherwise If f < 0.05then

we reject H0 and accept H1.

As f = 0.387944. Hence it can be concluded that H0: There is no

significant relationship between Gender and Investment Done in
Mutual Fund.

2.
H0: There is no significant relationship between Types of Mutual Fund
Scheme and Expected Returns on Investment.

H1: There is significant relationship between Types of Mutual Fund and

Expected Returns on Investment.

SOLUTION:

BY T- TEST

t-Test: Two-Sample Assuming Equal Variances

  Types of Expected
Mutual Returns on
Funds Investment
Mean 9.6 9.2
Variance 103.8 243.7
Observations 5 5
Pooled Variance 173.75
Hypothesized 0
Mean Difference
df 8
t Stat 0.047981
P(T<=t) one-tail 0.481454
t Critical one-tail 1.859548
P(T<=t) two-tail 0.962908
t Critical two-tail 2.306004  

Table value t Stat = 0.047981

Calculated value that is t Critical two tail= 2.306004. If table value is

less than calculated value than we accept H0 and reject H1 and
otherwise if table is more than calculated value than we accept H1 and
reject H0.

In this Table value t Stat = 0.047981 < Calculated value t Critical two
tail = 2.306004. So, we accept H0 and reject H1.
Hence, it can be concluded that H0: There is no significant
relationship between Types of Mutual Fund Scheme and Expected
Returns on Investment.

3.

H0: There is no significant relationship between Age Group and

Investment done in Mutual Funds.

H1: There is significant relationship between Age Group and Investment

done in Mutual Funds.

SOLUTION:

BY T- TEST

t-Test: Two-Sample Assuming Unequal Variances

Age Group Investment in MF

Mean 6.8 37
Variance 23.7 242
Observations 5 2
Hypothesized 0

Mean Difference
df 1
t Stat 2.69320997

9
P(T<=t) one-tail 0.11316760

9
t Critical one-tail 6.31375151

5
P(T<=t) two-tail 0.22633521

8
t Critical two-tail 12.7062047

Table value that is t Stat = 2.693209979

Calculated value that is t Critical two tail = 12.70620474

If table value is less than calculated value than we accept H0 and reject
H1 and otherwise if table is more than calculated value than we accept
H1 and reject H0.

In this Table value t Stat = 2.693209979 < Calculated value t Critical

two tail = 10.70620474. So, we accept H0 and reject H1.

Hence it can be concluded that H0: There is no significant

relationship between Age Group and Investment done in Mutual
Funds.

Chapter 5
CONCLUSION AND SUGGESTION

SUGGESTIONS AND RECOMMENDATIONS

  The most vital problem spotted is of ignorance. Investors should be
made aware of the benefits. Nobody will invest until and unless he is
fully convinced. Investors should be made to realize that ignorance is
no longer bliss and what they are losing by not investing.

 Mutual funds offer a lot of benefit which no other single option could
offer. But most of the people are not even aware of what actually a
mutual fund is? They only see it as just another investment option. So,
the advisors should try to change their mindsets. The advisors should
target for more and more young investors. Young investors as well as
persons at the height of their career would like to go for advisors due to
lack of expertise and time.

 Mutual Fund Company needs to give the training of the Individual

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

 Before making any investment, Financial Advisors should first enquire

about the risk tolerance of the investors/customers, their need and time
(how long they want to invest). By considering these three things they
can take the customers into consideration.

 Younger people aged under 35 will be a key new customer group into
the future, so making greater efforts with younger customers who show
some interest in investing should pay off.

 Customers with graduate level education are easier to sell to and there
is a large untapped market there. To succeed however, advisors must
provide sound advice and high quality.

 Systematic Investment Plan (SIP) is one the innovative products

launched by Assets Management companies very recently in the
industry. SIP is easy for monthly salaried person as it provides the
facility of do the investment in EMI. Though most of the prospects and
potential investors are not aware about the SIP. There is a large scope
for the companies to tap the salaried persons.

CONCLUSION

India has one of the highest savings rates globally. This makes it necessary
for Indian investors to look beyond the traditional favored Bank FDs and Gold
over Mutual Funds. Lack of Awareness had made Mutual Fund a less
preferred investment avenue. But today time is changing and Modern
Investors are ready to take Moderate and High-Risk Investments. Thanks to
SEBI and RBI’s role in promoting Mutual Funds country wide has led to
Mutual Fund SIP Collection for FY 2019-20 Rs. 82,930 Crores (January,
2019).

Mutual funds are not quick or should not be a quick get rich scheme, usually
those schemes are more likely to fail that to prosper. When you invest in a
mutual funds you should be prepared to make money the boring way.
Actually, most professional money managers would ask you not to get too
excited about making money; they prefer slow and steady growth.  However,
you may find that some advisors or sales representatives would simply
emphasize the opportunity for gain or growth.

So let me ask you this question, if a reputable institution is willing to give you
a rate of 1.5% return on your money and another (not so reputable institution
is willing to offer you 10% annually, doesn’t it make you wonder if you are
taking more risk than you should. And even if the 10% is guaranteed, isn’t
your principal at tremendous risk?

Mutual funds and any investment, risk equals return. The more return you
expect, the more risk you have to assume.  

Never be too quick to jump on the sales pitch of fantastic returns. Ask yourself
about your risk tolerance and what keeps you awake at night. Mutual funds
are a safe bet, yes you can lose money and especially so in the short run. But
if you hold it for a longer period and you have a good advisor you can make a
reasonably good rate of return. My clients have funds where some have paid
an average of 8% over the last eight years with low to medium risk.

You cannot bury your head in the sand, time have changed, a CD is no longer
sufficient; its growth rate is lower that inflation giving you a negative return. It’s
pointless having large sums in your current account unless it’s your turnover
in business. If you cannot buy a company, buy into a company or better yet,
buy into many companies.

REFERENCES
https://en.wikipedia.org/wiki/Mutual_fund

https://www.investopedia.com/terms/m/mutualfund.asp

https://www.moneycontrol.com/mutualfundindia/

https://www.mutualfundssahihai.com/en

https://www.fundsindia.com/

https://investmentlife.policybazaar.com/

https://economictimes.indiatimes.com/

https://cleartax.in/s/mutual-funds

https://www.paisabazaar.com/mutual-funds/mutual-funds-in-india/

https://www.bankbazaar.com/mutual-fund.html

https://www.nerdwallet.com/blog/investing/what-are-the-different-types-of-
mutual-funds/

https://www.fincash.com/l/structure-mutual-funds

https://www.thebalance.com/making-sense-out-of-the-structure-of-mutual-
funds-2466586

https://www.thebalance.com/making-sense-out-of-the-structure-of-mutual-
funds-2466586

https://www.principalindia.com/new-investor-basics/types-of-mutual-fund-
schemes

https://cleartax.in/s/need-know-mutual-fund-aum

https://www.investopedia.com/terms/a/aum.asp

ANNEXURE

Q1) Name
 ___________________________

Q2) Age Group

20-30 years
30-40 years
40-50 years
50-60 years
60 and above

Q3) Gender
Male
Female

Q4) Have you ever invested in Mutual Funds?

Yes
No

Q5) If yes, then mention the name of the Fund

____________________________

Q6) What form of Investments you prefer?

Real Estate
Shares/Debentures
Mutual Funds
Fixed Deposits/ Recurring Deposits
Post Office Schemes
PPF
UTI Schemes
Gold
 LIC Policy/Insurance
NSC/NSS
Other ____________________

Q7) Tick the most preferred basis that you consider are important while
investing into any investment Scheme.

Safety
Liquidity
Tax Benefit
Reliability
High Return

Q8) What type of scheme do you prefer?

Equity (Growth and Dividend)

Debt (Income)
Balanced
Tax Benefit
Other __________________

Q9) Which of the following source of information influenced you most in

selection of Mutual Funds?

Brokers
Financial Advisors
Friends/Relatives Advice
Newspaper/Financial Journals
TV/Internet
Other _________________

Q10) What has been your experience with returns expected from investment
in Mutual Funds?
 Very High
High
Average
Low
Very Low

Q11) What are the other factors which influence selection of Mutual Funds?

Organizational Influence
Growth Prospects
Credit Rating
Market Fluctuations
Size if Fund
Net Asset Value
Return Dividend
Tax Shield
Other _________________

Q12) Do you think that private sector Mutual Funds perform better than public
sector?

Strongly Disagree
Disagree
Neutral
Agree
Strongly Agree

Q13) Do you agree whether Mutual Funds are useful for small investors?

Strongly Disagree
Disagree
 Neutral
Agree
Strongly Agree

Q14) Do you think Mutual Funds’ investments is like owning any other asset?

Strongly Disagree
Disagree
Neutral
Agree
Strongly Agree

Q15) According to you what is the major factor for not investing in Mutual
Funds?

Ignorance
Ambiguity
Market Volatility
Poor Performance of previous funds
Not able to understand the intricacies of Mutual Funds
Other ______________________

Q16) Any suggestions over how to overcome the barriers of Mutual Funds?

____________________________________________________
_________