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An empirical study on performance of mutual fund in india

An empirical study on performance of mutual fund in india






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    An empirical study on performance of mutual fund in india An empirical study on performance of mutual fund in india Document Transcript

    • Stock market plays a very vital role in developing economy like India and alsoattracting the rural people in recent years. Investors usually perceive that all capital marketinvestment avenues are risky. Based on objectives and risk bearing capacities, investors gofor different investment alternatives. Among the various investment possibilities, mutual fundseems to be viable for all kind of investors as it is considered to be a safer mode ofinvestment. This study is an attempt to understand the performance of share market and toanalyse the correlation of performance of mutual funds with market indices like Sensex andNifty. As a part of this study, data is collected regarding performance of mutual funds andstock market for the financial year 2009 - 10, 2010 - 11 and 2011 - 12. Two mutual fund(growth) and two index funds are taken as sampling. The first few pages talk about the introduction of the subject and also of the industry.This is followed by literature review followed by the objectives of the study and researchmethodology. Then comes real part of the study in which the researcher have written all whathad analyzed through the questionnaire filled by investors and brokers. The last part consistsof findings, recommendations, limitations, conclusion and bibliography.The objectives of the study which the researcher undertook are to study the return oninvestment in share market. One of the another objective is to know how far the mutual fundschemes are able to win the confidence of the investors, for this the researcher have madestructure questionnaire and interpretation for the same has been done and also in order tomake it more effective the researcher have used bar charts. From this study the researcher have found that investment in mutual funds providesbetter returns on investment 1
    • LITERATURE REVIEW: It is bound to adapt the rich books, journals, periodicals, reports, etc. to measure withquantity of collections. Lots of books, national and international level magazines, websitesare referred for the study. The previous research studies are also be used as a guideline inpreparing and designing the research work.The project also includes the various schemes and history of mutual fund in India and world. Dr. K Ravichandran in his Research Article titled “A study on Investors preferencetowards various Derivatives market, published in the Journal of Contemporary Research inManagement a Quarterly journal, Vol3, Sept.-2012. The objective of the study was to knowthe various investment avenues and the investors risk preference towards it and to find out thepreference level of investors on various capital market instruments. The research articlefound few things like; 44% of investors are between age group of 31 – 40, and they areinfluenced by their friend and relatives. It is concluded with the point that, though the stockmarket is subjected to high risk, by using derivatives the loss can be minimized to an extent. 2
    • INTRODUCTION: We have seen many of the investors across the world becoming billionaire within ashort span of time by investing in share market, at the same time some investors lost amountin the same market also. In the year 1992, 2001 and 2008 reports reveals, few investors losttheir wealth and some of them committed suicide because of share market scandals. Thefamous investor Mr.Warren Buffet became the richest person because of his wise investmentstrategies, however it is not an alternative way to make money as it has huge amount of risk.An Investor has various investment options like debentures, shares, bank deposits, real estateetc. but choice of option is very essential. Mutual funds give higher returns because ofprofessional management of fund. When we look at the risk and return pattern of investment,mutual funds have yielded good return over the past years compared to direct capital market. The investment in stock market is increasing at a faster rate in the recent yearsbecause of FIIs, FDIs, Stock market awareness etc. Investment in Debentures, Bank Depositsare not so attractive because of less amount of interest, as in real terms the value of moneydecreases over a period of time. The other option is to invest money in stock market, but acommon man is not much aware of market and he is not much competent enough tounderstand the functions of stock market and also it is an expansive proposal. The question tobe answered is: what investment alternative should a small investor adopt? So obviously,mutual funds come to the rescue. A mutual fund is a very simple concept which is combination of savings of investors.Mutual Funds are highly cost efficient and very easy to invest in. Considering the state ofmind of the general investor, the research figures out to know how mutual fund is better thanstock market, identify the most popular MF among individual investors and analyse how farthe mutual fund schemes are able to win the confidence of the investors. 3
    • Introduction to Equity Capital and Mutual Fund Issue of shares is the most importantmethod of raising capital. Finance raised by theissue of shares serves as a financial floor to thecompany‟s capital structure. Shares indicate theownership or equity interest in the assets of thecompany. Shares are of different nominal or facevalues and of different kinds to attract differentkinds of investors. The maximum amount ofcapital to be raised by the issue of shares is mentioned in the memorandum of association. During 1990-91 and 1991-92, equity accounts for 35 to 39 percent of the total capitalraised respectively. This proportion was reversed in 1992-93, the first year of free pricing,when the share of equity increased to 62 percent. However, in 1995-96 there is a rise in theimportance of debt largely due to the high interest rates in the economy and negative returnsform the secondary market.Mutual Funds The first mutual funds were established in Europe. One researcher credits a Dutchmerchant with creating the first mutual fund in 1774. The first mutual fund outside theNetherlands was the Foreign & Colonial Government Trust, which was established inLondon in 1868. It is now the Foreign & Colonial Investment Trust and trades on the Londonstock exchange. Mutual funds were introduced into the United States in the 1890s. They becamepopular during the 1920s. These early funds were generally of the closed-end type with afixed number of shares which often traded at prices above the value of the portfolio. The first open-end mutual fund with redeemable shares was established on March 21,1924. This fund, the Massachusetts Investors Trust, is now part of the MFS family of funds.However, closed-end funds remained more popular than open-end funds throughout the1920s. By 1929, open-end funds accounted for only 5% of the industrys $27 billion in totalassets. After the stock market crash of 1929, Congress passed a series of acts regulating thesecurities markets in general and mutual funds in particular. The Securities Act of 4
    • 1933 requires that all investments sold to the public, including mutual funds, be registeredwith the Securities and Exchange Commission and that they provide prospective investorswith a prospectus that discloses essential facts about the investment. When confidence in the stock market returned in the 1950s, the mutual fund industrybegan to grow again. By 1970, there were approximately 360 funds with $48 billion inassets. The introduction of money market funds in the high interest rate environment of thelate 1970s boosted industry growth dramatically. The first retail index fund, First IndexInvestment Trust, was formed in 1976 by The Vanguard Group, headed by John Bogle; it isnow called the Vanguard 500 Index Fund and is one of the worlds largest mutual funds, withmore than $100 billion in assets as of January 31, 2011. In 2003, the mutual fund industry was involved in a scandal involving unequaltreatment of fund shareholders. Some fund management companies allowed favouredinvestors to engage in late trading, which is illegal, or market timing, which is a practiceprohibited by fund policy. The scandal was initially discovered by then-New York StateAttorney General Eliot Spitzer and resulted in significantly increased regulation of theindustry. At the end of 2010, there were over 15,000 mutual funds of all types in the UnitedStates with combined assets of $13.1 trillion, according to the Investment CompanyInstitute (ICI), a national trade association of investment companies in the United States. TheICI reports that worldwide mutual fund assets were $24.7 trillion on the same date. Mutual funds play an important role in U.S. household finances. At the end of 2010,they accounted for 23% of household financial assets. Their role in retirement planning isparticularly significant. Roughly half of assets in 401(k) plans and individual retirementaccounts were invested in mutual funds. The mutual fund industry in India started in 1963 with the formation of Unit Trust ofIndia, at the initiative of the Government of India and Reserve Bank. Unit Trust of India(UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank ofIndia and functioned under the Regulatory and administrative control of the Reserve Bank ofIndia. In 1978 Industrial Development Bank of India (IDBI) took over the regulatory andadministrative control in place of RBI. The first scheme launched by UTI was Unit Scheme1964. 5
    • Concept of Equity Capital and Mutual Fund The term equity literally means the stock or ownership of a company. They are alsoknown as ordinary shares. The rate of dividend on equity shares varies according to theamount of profit available and the intention of board of directors. In the event of winding upof the company, equity shares can be refunded only after all other claims, including those ofpreference shares for the refund of their capital, have been met. Equity capital is represented by funds that are raised by a business, in exchange for ashare of ownership in the company. Equity financing allows a business to obtain fundswithout incurring debt, or without having to repay a specific amount of money at a particulartime. A Mutual Fund is a trust that pools the money of many investors to invest in a varietyof different securities. Investment may be in stocks, bonds, money market securities or somecombination of these. Those securities are professionally managed on behalf of shareholders,and each investor holds a pro rata share of a portfolio, entitled to any profits when thesecurities are sold, but subject to any losses in value as well. A Mutual Fund is a group of investors operating through a fund manager to purchasea diverse portfolio of stock or bonds. For the individual investor, mutual funds provides thebenefit of having someone else manage your investments, take care of record keeping foryour account, and diversify your rupees over many different securities that may not beavailable or affordable to you otherwise. Today, minimum investment requirements on manyfunds are low enough that even the smallest investor can get started in mutual funds. 6
    • Reasons to invest in Mutual FundsWhy should one choose to invest in a mutual fund? Mutual Funds are considered to be safer mode ofinvestment; these are investment companies that pool moneyfrom investors at large and offer to sell and buy back its shares /units on a continuous basis and thus rose to invest in varioussecurities in different companies. If you are consideringinvestment in stock market and are scared of unpredictable market volatility, you candefinitely consider investing in mutual funds because of professional management. Some ofthe reasons that go strongly in favour of mutual funds are like it lowers risk factors.For the retail investor who does not have the time and experience to analyse and invest instocks and bonds, mutual funds offer a feasible investment alternative. This is because: 1. Normally investment in mutual fund is financially viable for all the investors, as it provides the benefit of economical access to expensive stocks, 2. Mutual funds diversify the risk by investing in a basket of assets. 3. An expert team of specialized fund managers managing the fund, each scheme has a separate professional fund manager. 4. As mutual fund is an institutional investor, which may have enough bargaining power in markets, and has access to decisive corporate information which individual investors don‟t access.Is investment in Mutual Fund Risk – Free? Usually the risk depends on Fund Manager and Asset Allocation. Mutual fundinvestments are not totally risk free. In fact, investing in mutual funds contains the same riskas investing in the markets, the only difference being that is due to professional managementof funds the controllable risks are substantially reduced. 7
    • Mutual funds vs. other investments Investment in mutual fund is always safe because of its unique advantages with it.When an investor invests in bank deposits, debt market, usually risk will be very less butreturn is around 10%, whereas investment in share market, Forex market carries higheramount of risk having higher return. But mutual fund will give usually moderate return withmoderate risk. Probability of losing amount in mutual fund will be less as the risk isdiversified with investment in different securities and fund is managed by professionalexperts. Exhibit-1 shows the comparative returns of mutual fund with other investmentalternatives.Mutual Fund Investments and the Sensex There are plenty of schemes available in the market like equity fund, income fund andliquid fund. In each of these categories we have infrastructure fund, tax savings fund, bondfund, fixed term plan and many more. One of the important funds is Growth fund where theasset allocation of this fund is made in equity shares listed in stock market and Index fundwill be invested in share of Indices. The correlation of these two funds should be obviouslypositive as direction moves towards the same way. 8
    • TYPES OF MUTUAL FUNDS The Investment Company Act of 1940 established three types of registeredmanagement investment companies in the United States: open-end funds, unit investmenttrusts (UITs); and closed-end funds. Exchange-traded funds (ETFs) are open-end funds orunit investment trusts that trade on an exchange; they have gained in popularity recently.While the term "mutual fund" may refer to all three types of registered investmentcompanies, it is more commonly used to refer exclusively to the open-end type.Open-end funds Open-end mutual funds must be willing to buy back their shares from their investorsat the end of every business day at the net asset value computed that day. Most open-endfunds also sell shares to the public every business day; these shares are also priced at net assetvalue. A professional investment manager oversees the portfolio, buying and sellingsecurities as appropriate. The total investment in the fund will vary based on share purchases,share redemptions and fluctuation in market valuation. There is no legal limit on the numberof shares that can be issued.Closed-end funds Closed-end funds generally issue shares to the public only once, when they arecreated through an initial public offering. Their shares are then listed for trading on a stockexchange. Investors who no longer wish to invest in the fund cannot sell their shares back tothe fund (as they can with an open-end fund). Instead, they must sell their shares to anotherinvestor in the market; the price they receive may be significantly different from net assetvalue. It may be at a "premium" to net asset value (meaning that it is higher than net assetvalue) or, more commonly, at a "discount" to net asset value (meaning that it is lower thannet asset value). A professional investment manager oversees the portfolio, buying andselling securities as appropriate.Unit investment trusts Unit investment trusts or UITs issue shares to the public only once, when they arecreated. Investors can redeem shares directly with the fund (as with an open-end fund) or theymay also be able to sell their shares in the market. Unit investment trusts do not have a 9
    • professional investment manager. Their portfolio of securities is established at the creation ofthe UIT and does not change. UITs generally have a limited life span, established at creation.Exchange-traded funds A relatively recent innovation, the exchange-traded fund or ETF is often structured asan open-end investment company, though ETFs may also be structured as unit investmenttrusts, partnerships, investments trust, grantor trusts or bonds (as an exchange-traded note).ETFs combine characteristics of both closed-end funds and open-end funds. Like closed-endfunds, ETFs are traded throughout the day on a stock exchange at a price determined by themarket. However, as with open-end funds, investors normally receive a price that is close tonet asset value. To keep the market price close to net asset value, ETFs issue and redeemlarge blocks of their shares with institutional investors.Investments and classification Mutual funds are classified by their principal investments. The four largest categoriesof funds are money market funds, bond or fixed income funds, stock or equity funds andhybrid funds. Within these categories, funds may be sub classified by investment objective,investment approach or specific focus. The SEC requires that mutual fund names not beinconsistent with a funds investments. For example, the "ABC New Jersey Tax-ExemptBond Fund" would generally have to invest, under normal circumstances, at least 80% of itsassets in bonds that are exempt from federal income tax, from the alternative minimum taxand from taxes in the state of New Jersey.Bond, stock and hybrid funds may be classified as either index (passively-managed) funds oractively-managed funds.Money market funds Money market funds invest in money market instruments, which are fixed incomesecurities with a very short time to maturity and high credit quality. Investors often usemoney market funds as a substitute for bank savings accounts, though money market fundsare not government insured, unlike bank savings accounts. Money market funds strive to maintain a $1.00 per share net asset value, meaning thatinvestors earn interest income from the fund but do not experience capital gains or losses. If afund fails to maintain that $1.00 per share because its securities have declined in value, it is 10
    • said to "break the buck". Only two money market funds have ever broken the buck:Community Bankers U.S. Government Money Market Fund in 1994 and the ReservePrimary Fund in 2008.Bond funds Bond funds invest in fixed income securities. Bond funds can be sub classifiedaccording to the specific types of bonds owned (such as high-yield or junk bonds,investment-grade corporate bonds, government bonds or municipal bonds) or by the maturityof the bonds held (short-, intermediate- or long-term). Bond funds may invest in primarilyU.S. securities (domestic or U.S. funds), in both U.S. and foreign securities (global or worldfunds), or primarily foreign securities (international funds).Stock or equity funds Stock or equity funds invest in common stocks. Stock funds may invest in primarilyU.S. securities (domestic or U.S. funds), in both U.S. and foreign securities (global or worldfunds), or primarily foreign securities (international funds). They may focus on a specificindustry or sector.A stock fund may be sub classified along two dimensions:(1) Market capitalization and(2) Investment style (i.e., growth vs. blend/core vs. value).The two dimensions are often displayed in a grid known as a "style box." Market capitalization or market cap indicates the size of the companies in which afund invests, based on the value of the companys stock. Each companys marketcapitalization equals the number of shares outstanding times the market price of the stock.Market capitalizations are typically divided into the following categories: Micro cap Small cap Mid cap Large cap 11
    • While the specific definitions of each category vary with market conditions, large capstocks generally have market capitalizations of at least $10 billion, small cap stocks havemarket capitalizations below $2 billion, and micro-cap stocks have market capitalizationsbelow $300 million. Funds are also classified in these categories based on the market caps ofthe stocks that it holds. Stock funds are also sub classified according to their investment style: growth, valueor blend (or core). Growth funds seek to invest in stocks of fast-growing companies. Valuefunds seek to invest in stocks that appear cheaply priced. Blend funds are not biased towardeither growth or value.Hybrid funds Hybrid funds invest in both bonds and stocks or in convertible securities. Balancedfunds, asset allocation funds, target date or target risk funds and lifecycle or lifestyle fundsare all types of hybrid funds. Hybrid funds may be structured as funds of funds, meaning that they invest by buyingshares in other mutual funds that invest in securities. Most fund of funds invest in affiliatedfunds (meaning mutual funds managed by the same fund sponsor), although some invest inunaffiliated funds (meaning those managed by other fund sponsors) or in a combination ofthe two.Index (passively-managed) versus actively-managed An index fund or passively-managed fund seeks to match the performance of a marketindex, such as the S&P 500 index, while an actively managed fund seeks to outperform arelevant index through superior security selection. 12
    • ADVANTAGES OF EQUITY CAPITALHigh Dividend and High Value In times of prosperity, the equity shareholders get a very high rate of dividend,sufficiently higher than that on preference shares. At the same time, their share value willalso go up in the market.Voting Rights It is the inky equity shareholders who enjoy voting rights on all the policy matter ofthe company.Pre-emptive right to new shares Equity shareholders have the pre-emptive right to purchase new shares. Under theprovision of the companies act, the existing shareholders of the company have a right toallotment of newly issued shared.Many Privileges and Rights Equity shareholders enjoy many privileges and rights. For example, they can vote atmeetings, elect directors, control the directors to run the company efficiently and profitably,look into the books and records of the company and transfer or sell their shareholdings. 13
    • ADVANTAGES OF MUTUAL FUNDSDiversification Mutual funds typically hold anywhere from 50 to 200 different stocks. This type ofdiversification diminishes the risk of a few investments adversely effecting overall returns.Continuous, professional management Skilled professionals whose compensation is linked to the performance of the fundmanage mutual funds.Economies of scale Mutual funds incur proportionately lower trading commissions than do individuals.Lower transaction costs can translate into better investment performance.Shareholder services Mutual fund Complexes offer automatic investment plans, retirement plans, recordkeeping for tax purposes, and systematic withdrawal plans, and they allow investors to makeexchanges or switches between funds over the telephone. Mutual funds also allow theautomatic reinvestment of income dividends and capital gains distributions into additionalshares.Liquidity Mutual funds are very liquid financial instruments since they can be easily purchasedor sold with no significant price impact. Redemptions technically have no direct effect on thenet asset value at which they were executed. Redemptions might have an indirect effect ifthere were massive and forced portfolio liquidations before the redemption orders wereexecuted. This indirect effect is expected to be rare. Mutual funds typically offer moreliquidity than individual stocks, bonds, or closed-ended portfolios. 14
    • DISADVANTAGES OF EQUITY CAPITALNo refund of capital Since equity shares cannot be refunded, excessive issue of such share may leads toovercapitalisation, particularly when the earning capacity of the company is declining.Benefits only in prosperity During the periods of prosperity, the company has to distribute heavy dividends onthese shares.Manipulation of control Since the equity share have proportionate voting power, the company‟s managementmany be vitiated by manipulation of votes, clique-formation, abuse of proxy rights etc.High risk Equity shareholders cannot claim dividend as a matter of right, because the decisionto fit the rate of dividend on equity shares is vested in the Board of Directors. Thereforeinvestors as a class may find equity shares unsafe, unattractive and unremunerated.Unhealthy Speculation During the period of boom, the market value of share will go up, which leads tounhealthy speculation in the stock market. 15
    • DISADVANTAGES OF MUTUAL FUNDS Like many investments, mutual funds offer advantages and disadvantages, which areimportant for you to consider and understand before you decide to buy. Here are some of thedrawbacks of mutual funds.Fluctuating returns Mutual funds are like many other investments without a guaranteed return. There isalways the possibility that the value of your mutual fund will depreciate. This is especiallyimportant for investors in money market funds.Diversification Although diversification is one of the keys to successful investing, many mutual fundinvestors tends to over diversify. The idea of diversification is to reduce the risks associatedwith holding a single security; over diversification occurs when investors acquire many fundsthat are highly related and so don‟t get the risk reducing benefits of diversification.Cash. Cash and more Cash Mutual funds pool money from thousands of investors, so everyday investors areputting money into the fund as well as withdrawing investments. To maintain liquidity andthe capacity to accommodate withdrawals, funds typically have to keep a large portion oftheir portfolio as cash. Having ample cash is great for liquidity, but money sitting around ascash is not working for you and thus is not very advantageous.Costs Mutual funds provide investors with professional management; however, it comes at acost. Funds will typically have a range of different fees that reduce the overall pay-out. Inmutual funds the fees are classified into two categories; shareholder fees and annual fundoperating fees. The shareholder fees, in the form of loads and redemption fees are paiddirectly by shareholders purchasing or selling the funds. The annual fund operating fees arecharged as an annual percentage – usually ranging from 1-3%. These fees are assessed tomutual fund investors regardless of the performance of the fund. 16
    • Misleading Advertisement The misleading advertisement of different funds can guide investors down the wrongpath. Some funds may be incorrectly labelled as growth funds, while others are classified assmall-cap or income.Evaluating Funds Another disadvantage of mutual funds is the difficulty they pose for investorsinterested in researching and evaluating the different funds. Unlike stocks, mutual funds donot offer investors the opportunity to compare the P/E ratio, sales growth, earnings per share,etc. A mutual fund‟s net asset value gives investors the total value of the fund‟s portfolio lessliabilities, but how do you know if one fund is better than another? Furthermore,advertisements, rankings and ratings issued by fund companies only describe pastperformance. 17
    • LEGAL AND REGULATORY FRAMEWORKMutual funds are regulated by the SEBI (Mutual Fund) Regulations, 1996.Bank-sponsored mutual funds are jointly regulated by SEBI and RBI.Listed mutual funds are subject to the listing regulations of stock exchanges.Association of Mutual funds India (AMFI) is an industry association of mutual funds.(training, investor awareness)Indian Trusts Act, 1882 which requires mutual funds to be established in form of atrust.Income Tax Act, 1961, which covers the tax aspects of mutual funds.The present system of regulations of mutual funds also includes some relevantprovisions of the Companies Act, 1956. 18
    • Hypothesis “Investment in mutual fund yields higher return than direct capital market”. From this study the researcher have found that mutual funds yields higher return thancapital market and it has been proved in the below data analysis and findings. The data iscollected from 100 investors of different companies in the form of questionnaire. It has been found that investment in mutual funds provides return of 183.59% in 3years period and whereas investment in capital market provides return of only 19.39% in 3years. And majority of investors i.e. 67% also agree that mutual fund investment is safer thaninvestment in any other avenues. From this study it concludes that mutual fund yields higherreturn than direct capital market. 19
    • OBJECTIVES OF THE STUDY:Following are the objectives for the study. a. To study the return on investment in share market. b. To understand the fund sponsor qualities influencing the selection of MFs/Schemes c. To know how far the mutual fund schemes are able to win the confidence of the investors SCOPE OF THE STUDY: The scope of the study is limited to investors and their investment preferences. Studyobjective is to investigate the return on investment in share market and to understand the fundsponsor qualities influencing the selection of MFs/Schemes. Also to find out that how far themutual fund schemes are able to win the confidence of the investors. The researcher‟s study will consider urban and semi-urban area of India. Now, theresearcher study purpose is to know the return on investment in share market and mutualfund. The research was carried out to define how investor should invest in terms of makingright choice of investment, in addition what all techniques should be used so that they can getthe better returns from the markets. For conducting the study help of certain tools were takensuch as journals, net search, filling up of questionnaires. 20
    • LIMITATIONS OF THE STUDY: Carrying the survey was a general learning experience but the researcher also facedsome problems, which are listed here:  India‟s population is too large and the number of investors and brokers in India is also very large and it is not possible to cover each and every investor and brokers in India.  The data is collected from investors and brokers in Mumbai, Amritsar, and Delhi cities only; mostly are from Mumbai. It could also not cover the whole of these cities because the sample size was less and also due to time constraint.  Generally the respondents were busy in their work and were not interested in responding rightly.  Respondents were reluctant to discover complete and correct information about themselves and their financial investments.  Most respondents were not maintaining proper knowledge about the companies they are investing, so they were unable to provide exact information regarding the returns companies providing.  Most of the respondents don‟t want to disclose the information about their investment preferences.  Due to human behaviour information may be biased. 21
    • RESEARCH METHODOLOGY:Research Design:The design for this study is Descriptive research.Descriptive research, also known as statistical research, describes data and characteristicsabout the population or phenomenon being studied. Descriptive research answers thequestions who, what, where, when, "why" and how... Although the data description is factual, accurate and systematic, the research cannotdescribe what caused a situation. Thus, Descriptive research cannot be used to create a causalrelationship, where one variable affects another. In other words, descriptive research can besaid to have a low requirement for internal validity.Sources of Data: The study undertaken there to be mainly based on the primary data i.e. structuredquestionnaire is designed. The study also contains secondary data i.e. data from authenticatedwebsites and journals for the latest updates just to gain an insight for the views of variousexperts. In this Project, the method used to collect the data is a primary questionnaire method.The questionnaire is been answered by the investors and brokers who invest in equity marketsand mutual funds.Data Collection: The data is collected from the investors and brokers in the form of questionnaire andthe sample size is 100 as a respondents. The data is collected from Mumbai, Amritsar, andDelhi city only, mostly sample size was from Mumbai. Because it is a pilot study and due totime constraint the sample size could not cover whole India. The sample size is small.  Data collection method: Survey  Data collection tool: Questionnaire 22
    • Data Analysis And Interpretation Sample Size: 100 Total number of questions asked: 9 Age Group: Below 25 38 38% 26 to 35 42 42% 36 to 45 7 7% Above 46 13 13% Below 25 25 -35 35 - 45 above 45 13% 7% 38% 42%Observation: The sample consisted of a total of 100 investors and brokers among which 38 % ofinvestors and brokers belong to age group of below 25, 42% of investors and brokers belongto 26to 35 age group, 7% investors and brokers belong to 36to 45 age group and 13%investors and brokers belong to above 46 age group. 23
    •  Do you Invest in Markets? Yes 73 No 27 Yes No 27% 73%Observation: The sample consisted of a total of 100 investors and brokers, which that nearly 73%of investors and brokers invest their money in share markets or mutual funds. 24
    •  Income: INCOME BRACKET 1,80,000 - 3,50,000 42 42% 3,50,000 - 7,00,000 44 44% Above 7,00,000 14 14% 50 42% 44% 40 30 20 14% 10 0 1,80,000 - 3,50,000 3,50,000 - 7,00,000 Above 7,00,000 1,80,000 - 3,50,000 3,50,000 - 7,00,000 Above 7,00,000 Series1 42 44 14Observation: The sample consisted of a total of 100 investors and brokers, which shows that all theinvestors and brokers comes in the tax bracket and which is also one of the main reason toinvest in markets and schemes which provides good returns with tax benefit. 25
    •  Select your preference for the financial investment? Equities 42 42% Mutual Funds 33 33% Both 25 25% Both Mutual Funds Equities Both 25% 0% Equities 42% Mutual Funds 33%Observation: The sample consisted of a total of 100 investors and brokers, which shows that mostof investors and brokers are more willing to invest their money in equities, but the differenceis very less as 42% of investors and brokers are willing to invest in equity and 33% ofinvestors and brokers will like to invest in mutual funds. 26
    •  State the reason for your preference? Rate of Return 74 74% Flexible Investment Terms 26 26% 26% Rate of Return Flexible Investment Terms 74%Observation: The sample consisted of a total of 100 investors and brokers, which shows that mostof investors and brokers choose their respective investment option with giving moreimportance to rate of return on their investment. 27
    •  What type of investment do you make? Short Term (0-1 year period) 24 24% Medium Term (1-5 year period) 41 41% Long Term (More than 5 year period) 35 35% Long Term Short Term (0-1 (More than 5 year period) year period) 24% 35% Medium Term (1-5 year period) 41%Observation: The sample consisted of a total of 100 investors and brokers, which shows that mostof investors and brokers are more willing to invest their money for longer time period as theperception is that they will get higher returns in long term investment. 28
    •  Investing in Mutual Funds is far safer than Investing in other avenues”. Do you agree? Yes 67 67% No 33 33% 67 33 Yes NoObservation: The sample consisted of a total of 100 investors and brokers, which shows that mostof investors and brokers agree that mutual fund options as safer than investing in equity,bonds or in debentures. 29
    • According to you among these products in which one should invest now? Equity Markets 51 51% Mutual Funds 49 49% 51.5 51 50.5 50 49.5 49 48.5 48 Equity Markets Mutual Funds Series1 51 49Observation: According to Survey the investors still believe that invest should be done in equitiesbut the difference between the preference of investors is very less. As 51% of investorssuggest to invest in equities in current time whereas 49% of investors suggest to invest inmutual funds. 30
    • State the reason for your preference with reference to above questions answer? Secure Investment 52 52% Expected High Rate of Returns 48 48% Secure Investment Expected High Rate of Returns 48% 52%Observation: According to Survey the investors select their current area of investment by givingimportance to the factor of Secure Investment. 31
    • Which factor of a Mutual Fund or of a equity plays an important role to invest in them? Most Important Important Least Important Out of 100% Brand 45% 50% 5% 100 Performance 79% 20% 1% 100 Management Team 34% 64% 2% 100 90 79 80 70 64 60 50 50 45 Brand 40 Performance 34 Management Team 30 20 20 10 5 1 2 0 Most Important Important Least ImportantObservation: According to Survey the investors have given the most important preference forinvesting to the performance of the equity or mutual fund. And second preference has beengiven to the brand name of the company and last factor to consider is management team. 32
    • Comparative Analysis of Equity Share and Mutual Fund PERFORMANCE OF RELIANCE INDUSTRIES LTD (EQUITY) FOR THE PAST 3 YEARS Monthly Monthly Yearly Yearly Month Close Price Difference Returns in % Difference Returns in %Apr-09 1802.7 - -May-09 2277.5 474.8 26.34Jun-09 2023.35 -254.15 -11.16Jul-09 1957.1 -66.25 -3.27Aug-09 2004.1 47 2.40Sep-09 2201.2 197.1 9.83Oct-09 1931.25 -269.95 -12.26Nov-09 1062.8 -868.45 -44.97Dec-09 1089.4 26.6 2.50Jan-10 1046.55 -42.85 -3.93Feb-10 978 -68.55 -6.55Mar-10 1074.65 96.65 9.88 -728.05 -40.3866Apr-10 1032.5 -42.15 -3.92May-10 1045.05 12.55 1.22Jun-10 1086.9 41.85 4.00Jul-10 1009.6 -77.3 -7.11Aug-10 918.85 -90.75 -8.99Sep-10 986.35 67.5 7.35Oct-10 1095.8 109.45 11.10Nov-10 986.8 -109 -9.95Dec-10 1058.25 71.45 7.24Jan-11 919.25 -139 -13.13Feb-11 964.95 45.7 4.97Mar-11 1047.8 82.85 8.59 15.3 1.48184Apr-11 981.95 -65.85 -6.28May-11 951.75 -30.2 -3.08Jun-11 897.6 -54.15 -5.69Jul-11 827.7 -69.9 -7.79Aug-11 781.5 -46.2 -5.58Sep-11 808.3 26.8 3.43Oct-11 877.75 69.45 8.59Nov-11 778.8 -98.95 -11.27Dec-11 692.9 -85.9 -11.03Jan-12 815.45 122.55 17.69Feb-12 818.65 3.2 0.39Mar-12 724.85 -93.8 -11.46 -257.1 -26.1826 Difference and Returns in % of 3 years = -1077.85 -59.7909 33
    • As the above data shows that RELIANCE INDUSTRIES LTD has given positivereturns only in one financial period 2010-11 and that too only 1.48 % and has given returnsduring two financial years. And comparing the returns of 3 years the company has givennegative returns of 59.79%. 34
    • PERFORMANCE OF ICICI BANK LTD (EQUITY) FOR THE PAST 3 YEARS Monthly Monthly Yearly YearlyMonth Close Price Difference Returns in % Difference Returns in %Apr-09 477.75 -May-09 740.7 262.95 55.04 474.95 99.41392Jun-09 722 -18.70 -2.52Jul-09 759.05 37.05 5.13Aug-09 749.5 -9.55 -1.26Sep-09 904.8 155.30 20.72Oct-09 789.6 -115.20 -12.73Nov-09 864.3 74.70 9.46Dec-09 875.7 11.40 1.32Jan-10 830.4 -45.30 -5.17Feb-10 871.85 41.45 4.99Mar-10 952.7 80.85 9.27Apr-10 950.5 -2.20 -0.23 162.25 17.06996May-10 867.05 -83.45 -8.78Jun-10 862 -5.05 -0.58Jul-10 904.45 42.45 4.92Aug-10 977.3 72.85 8.05Sep-10 1110.35 133.05 13.61Oct-10 1161.65 51.3 4.62Nov-10 1143.65 -18 -1.55Dec-10 1144.65 1 0.09Jan-11 1020 -124.65 -10.89Feb-11 971 -49 -4.80Mar-11 1112.75 141.75 14.60Apr-11 1114.25 1.5 0.13 -258.2 -23.1725May-11 1086 -28.25 -2.54Jun-11 1093.1 7.1 0.65Jul-11 1037.75 -55.35 -5.06Aug-11 873.25 -164.5 -15.85Sep-11 875.35 2.1 0.24Oct-11 930.5 55.15 6.30Nov-11 714.15 -216.35 -23.25Dec-11 684.6 -29.55 -4.14Jan-12 902 217.4 31.76Feb-12 906.5 4.5 0.50Mar-12 856.05 4.5 0.50 Difference and Returns in % of 3 years = 378.3 79.18367 35
    • As the above data shows that ICICI BANK LTD has given positive returns in twofinancial periods, i.e. 2009-10 & 2010-11 and has given negative returns in one financialyear. And comparing the returns of 3 years the company has given positive returns of79.18%. 36
    • PERFORMANCE OF SBI MSFU CONTRA-GROWTH (MUTUAL FUND) FOR THE PAST 3 YEARS Net Monthly Monthly Yearly Yearly Date Asset Value Difference Returns In % Difference Returns in %29-Apr-09 34.13 21.61 63.3129-May-09 45 10.87 31.8530-Jun-09 44.16 -0.84 -1.87 31-Jul-09 48.3 4.14 9.3831-Aug-09 48.97 0.67 1.3930-Sep-09 52.81 3.84 7.8430-Oct-09 49.8 -3.01 -5.7030-Nov-09 53.17 3.37 6.7731-Dec-09 55.68 2.51 4.72 29-Jan-10 53.31 -2.37 -4.2626-Feb-10 52.55 -0.76 -1.4331-Mar-10 55.74 3.19 6.0730-Apr-10 56.33 0.59 1.06 -0.71 -1.2631-May-10 54.1 -2.23 -3.9630-Jun-10 57.03 2.93 5.42 30-Jul-10 57.05 0.02 0.0431-Aug-10 58.17 1.12 1.9630-Sep-10 62.63 4.46 7.6729-Oct-10 62.95 0.32 0.5130-Nov-10 59.46 -3.49 -5.5431-Dec-10 61.02 1.56 2.62 31-Jan-11 54.18 -6.84 -11.2128-Feb-11 51.18 -3.00 -5.5431-Mar-11 55.62 4.44 8.6829-Apr-11 56.07 0.45 0.81 -5.4 -9.6331-May-11 54.68 -1.39 -2.4830-Jun-11 55.23 0.55 1.01 29-Jul-11 54.16 -1.07 -1.9430-Aug-11 49.36 -4.80 -8.8630-Sep-11 48.58 -0.78 -1.5831-Oct-11 50.53 1.95 4.0130-Nov-11 46.23 -4.30 -8.5130-Dec-11 43.79 -2.44 -5.28 31-Jan-12 48.86 5.07 11.5829-Feb-12 51.6 2.74 5.6129-Mar-12 50.67 -0.93 -1.80 Difference and Returns in % of 3 years = 16.54 48.46 37
    • As the above data shows that SBI MSFU CONTRA-GROWTH has given positivereturns in 1st financial year in 2009-10 & and has given a negative returns in 2nd and 3rdfinancial year. And comparing the returns of 3 years the fund has given positive returns of48.46%. 38
    • PERFORMANCE OF RELIANCE EQUITY OPPORTUNITIES FUND – GROWTH PLAN (MUTUAL FUND) FOR THE PAST 3 YEARS Net Asset Monthly Monthly Yearly Yearly Date Value Difference Returns in % Difference Returns in % 29-Apr-09 15.1389 29-May-09 20.0628 4.92 32.52 15.95 105.3557392 30-Jun-09 20.1576 0.09 0.47 31-Jul-09 22.1421 1.98 9.84 31-Aug-09 23.1923 1.05 4.74 30-Sep-09 25.9585 2.77 11.93 30-Oct-09 24.8117 -1.15 -4.42 30-Nov-09 26.8891 2.08 8.37 31-Dec-09 29.4351 2.55 9.47 29-Jan-10 28.095 -1.34 -4.55 26-Feb-10 28.3646 0.27 0.96 31-Mar-10 31.0886 2.72 9.60 30-Apr-10 32.2103 1.12 3.61 3.508 10.89092619 31-May-10 31.0571 -1.15 -3.58 30-Jun-10 32.9375 1.88 6.05 30-Jul-10 34.422 1.48 4.51 31-Aug-10 35.6699 1.25 3.63 30-Sep-10 38.7718 3.10 8.70 29-Oct-10 38.4782 -0.29 -0.76 30-Nov-10 37.2717 -1.21 -3.14 31-Dec-10 38.3986 1.13 3.02 31-Jan-11 34.5916 -3.81 -9.91 28-Feb-11 32.683 -1.91 -5.52 31-Mar-11 35.7183 3.04 9.29 29-Apr-11 36.2916 0.57 1.61 -0.6954 -1.916145885 31-May-11 35.6693 -0.62 -1.71 30-Jun-11 36.6927 1.02 2.87 29-Jul-11 36.61 -0.08 -0.23 30-Aug-11 33.5575 -3.05 -8.34 30-Sep-11 33.3842 -0.17 -0.52 31-Oct-11 34.847 1.46 4.38 30-Nov-11 31.8511 -3.00 -8.60 30-Dec-11 30.0922 -1.76 -5.52 31-Jan-12 34.0546 3.96 13.17 29-Feb-12 36.0334 1.98 5.81 29-Mar-12 35.5962 -0.44 -1.21 20.4573 135.1306898 39
    • As the above data shows that RELIANCE EQUITY OPPORTUNITIES FUND –GROWTH PLAN has given positive returns in two financial years, i.e. 2009-10 & 2010-11and has given a negative returns in one financial year i.e.2011-12. And comparing the returnsof 3 years the fund has given positive returns of 135.13%. 40
    • COMPARATIVE ANALYSIS OF EQUITY V/S MUTUAL FUNDEQUITIES 2009-10 2010-11 2011-12 2009-2012RELIANCE INDUSTRIES LTD -40.38% 1.48% -26.18% -59.79%ICICI BANK LTD 99.41% 17.06% -23.17% 79.18%MUTUAL FUND 2009-10 2010-11 2011-12 2009-2012SBI MSFU CONTRA 63.31% -1.26% -9.63% 48.46%RELIANCE EQUITY OPP OURTUNITIES FUND 105.35% 10.89% -1.91% 135.13% ANALYSIS OF EQUITY EQUITIES 2009-10 2010-11 2011-12 2009-2012RELIANCE INDUSTRIES LTD -40.38% 1.48% -26.18% -59.79%ICICI BANK LTD 99.41% 17.06% -23.17% 79.18% 41
    • 99.41% 100.00% 79.18% 80.00% 60.00% 40.00% 17.06% RELIANCE INDUSTRIES LTD 20.00% 1.48% ICICI BANK LTD 0.00% 2009-10 2010-11 2011-12 2009-2012 -20.00% -26.18% -40.00% -23.17% -40.38% -60.00% -59.79% The above data shows the returns of respective equities for the period. So consider ifan investor has invested is these two companies then on 1st financial year his investment of„X‟ amount will increase by 59.03% and on 2nd financial year his investment value willincrease by 18.54% and on 3rd financial year his investment value will reduce by 49.35%. And if investor keep invested his money for 3yrs then his investment value at end of3rd financial year will increase by 19.39% only which is less as he can get more than 20% ofreturns by keeping fixed deposits in the bank. 42
    • ANALYSIS OF MUTUAL FUNDMUTUAL FUND 2009-10 2010-11 2011-12 2009-2012SBI MSFU CONTRA 63.31% -1.26% -9.63% 48.46%RELIANCE EQUITY 105.35% 10.89% -1.91% 135.13%OPPOURTUNITIES FUND Mutual Funds 135.13% 140.00% 120.00% 105.35% 100.00% 80.00% 63.31% SBI MSFU CONTRA 60.00% 48.46% RELIANCE EQUITY OPP OURTUNITIES FUND 40.00% 20.00% 10.89% -9.63% -1.91% -1.26% 0.00% 2009-10 2010-11 2011-12 2009-2012 -20.00% The above data shows the returns of respective mutual funds for the period. Soconsider if an investor has invested is these two funds then on 1st financial year hisinvestment of „X‟ amount will increase by 168.66% and on 2nd financial year his investmentvalue will increase by 9.63% and on 3rd financial year his investment value will reduce by11.54%. And if investor keep invested his money for 3yrs then his investment value at end of3rd financial year will increase by 183.59% which is far better than the returns of equityinvestment returns. 43
    • ANALYSIS: (As from analysing the above data and also from questionnaire wecan say that Hypothesis is being proved.)  Among 100% sample, 67% respondents agree that mutual funds are safer than any other investment option.  Among 3yrs data of returns of equity and mutual fund, it shows that mutual fund provides more return than the equity market.  Among 100% sample, 49% respondents says that one should invest in mutual funds, which shows the increasing preference for mutual fund. 44
    • FINDINGS OF THE STUDY: The First question asked was about the investment factor and among the 100% sample size, 73% respondents said that they do invest in markets. Among the 100 sample size, 24% of investors were wish to invest for short term period (0-1 year) whereas 41% of investors were willing to invest their money for medium term (1–5 years)and 35% of investors for long term investment (more than 5 year). Among the 100 sample size, 74% investors invest money with the preference of rate of return on their investment and 26% investors invest money with the preference of flexible investment terms. The investors have given almost same weightage to the question of According to you among these products in which one should invest now? As 51% of investors suggest investing in Equities and 49 % of investors suggests for Mutual funds. So here it can be said that mutual funds are gaining its importance in the finance industry. When asked about the reason for selecting the respective product of investment then the preference was given to the factor of secure investment, i.e. by 52% of investors. It is noted that investors give 1st importance to performance of the equity or mutual fund and then brand name and at last give importance to management team while making the decision in which they would prefer to invest their money. 45
    • RECOMMENDATIONS OF THE STUDY: As it has been found from the above findings that mutual funds are providing better returns and gaining its importance in the finance industry. Therefore, the mutual fund companies in India should make vice decisions while making investments and provide more benefits to investors. As many investors get fooled by some mutual fund companies which gives false promises to investors for investing their money in their mutual fund. So government should make strict rules for all the mutual fund companies in order to safe guard the investment of all investors. The charges should be reduced to minimum and also the lock in period factor should be minimised, which will attract more investors from the market. Key features of mutual funds should be mentioned in the advertisement. Features like Diversification, Systematic Investment Plans (SIP), Tax benefits should be mentioned in the advertisements. Otherwise, people will see mutual funds as normal shares in which we invest money. Many fund firms themselves have provided assurances regarding restitution for losses to shareholders i.e., reassuring. However, these promises have been short on specifics indicating how those losses will be measured and how the compensation will be provided. Mutual funds should use appropriate and simple names for the schemes, which match the features of the schemes, so that the investors are not confused and not feel cheated after investing. 46
    • CONCLUSION The Indian mutual funds industry has transformed totally for good since last decadeand has shown growth and potential. Though the Asset under Management and number ofschemes has increased significantly, but it is yet to be a household product, and needs tocover the retail segment effectively. Moreover, there are still many remote and potential areaswhich lack the required knowledge and infrastructure of mutual funds. Mutual fund is an excellent product offering great flexibility and liquidity, which canbe tailored to suit any investor‟s objective and it is affordable for the all people of differentincome levels and saving habits After doing study it is concluded that yes mutual funds are much better investmentoption but as future is uncertain so no one can give a sure guarantee of good returns, nomatter whether it is equity or a mutual fund. Investors can minimise their risk by doing little research before investing in themarkets which will help them to decide the right investment plan or product. 47
    • BIBLIOGRAPHYBooks Jaydev, M. 1998, Investment policy and performance of mutual funds, Kanishka Pub., India. Gupta, A. 2002, Mutual funds in India: a study of investment management, Anmol Publications PVT. LTD., India. Business world C.R. Kothari – Research MethodologyWebsites http://www.amfiindia.com http://search.proquest.com http://articles.economictimes.indiatimes.com http://www.google.com http://www.moneycontrol.com http://www.bseindia.com http://www.nseindia.com http://www.icicibank.com http://www.sbi.co.in http://www.sebi.gov.in http://www.finance.yahoo.com 48
    • ANNEXUREQUESTIONNAIRE This questionnaire is prepared for a research project An Empirical Study on Performance of Mutual Fund in IndiaName:Age:Income Category: a. 1, 80,000-5, 00,000 b.5, 00,000-8, 00,000 c. above 8, 00,000 1. Do you invest in Markets? a. Yes b. No 2. What type of investment do you make? a. Short Term (0-1 year period) b. Medium Term (1-5 year period) c. Long Term (More than 5 year period) 3. Give your ratings on the following financial investment? a. Equities b. Mutual Funds 4. State the reason for your preference? a. Rate of Return b. Flexible Investment Terms 5. Investing in Mutual Funds is far safer than Investing in other avenues”. Do you agree? a. Yes b. No 6. According to you among these products in which one should invest now? a. Equity Market b. Mutual Funds 49
    • 7. State the reason for your preference with reference to above questions answer? a. Secure Investment b. Expected High Rate of Returns8. Which factor of a Mutual Fund or of a equity plays an important role to invest in them? Most Important Important Least Important Brand Performance Management Team Thank you for your precious time and support. 50