1INTRODUCTIONInvestment in share markets are influenced by the analysis & reasoning which help inpredicting the market to some extent. Over the past years a number of technical & theories foranalysis have evolved, these combined with modern technology guides the investor. The bigplayers in the market, like Foreign Institutional Investors, Mutual Funds, etc. have the expertisefor various analytical tools & make use of them. The small investors are not in a position tobenefit from the market the way Mutual Funds can do. Generally a small investor‟sinvestments are based on market sentiments, inside information, through grapevine, tips &intuition. The small investors depend on brokers and brokerage house for his investments.They can invest through the Mutual Funds who are more experienced and expert in this fieldthan a small investor himself.In recent years a large number of players have entered into his market. The project has beencarried out to have an overview of Mutual Fund Industry and to understand investor‟sperception about Mutual Funds in the context of their trading preference & explore investor‟srisk perception.Concept of Mutual funds:Mutual funds, as the name indicates is the fund where in numerous investors come together toinvest in various schemes of mutual fund. Mutual funds are dynamic institution, which plays acrucial role in an economy by mobilizing savings and investing them in the capital market, thusestablishing a link between savings and the capital market. A mutual fund is an institution thatinvests the pooled funds of public to create a diversified portfolio of securities. Pooling is thekey to mutual fund investing. Each mutual fund has a specific investment objective and tries tomeet that objective through active portfolio management. Mutual fund as a investmentcompany combines or collects money of its shareholders and invests those funds in variety ofstocks, bonds, and money market instruments. The latter include securities, commercialpapers, certificates of deposits, etc. Mutual funds provide the investor with professional
2management of funds and diversification of investment. Investors who invest in mutual fundsare provided with units to participate in stock markets. These units are investment vehicle thatprovide a means of participation in the stock market for people who have neither the time, northe money, nor perhaps the expertise to undertake the direct investment in equities. On theother hand they also provide a route into specialist markets where direct investment oftendemands both more time and more knowledge than an investor may possess.The price of units in any mutual fund is governed by the value of underlying securities. Thevalue of an investor‟s holding in a unit can therefore, like an investment in share, can go downas well as up. Hence it is said that mutual funds are subjected to market risk. Mutual fund cannot guarantee a fixed rate of return. It depends on the market condition. If the particularscheme is performing well than more return can be expected. It also depends on the fundmanager expertise knowledge. It is also seen that people invest in particular funds dependingon who the fund manager is.The following diagram shows the working of mutual fund
3This diagram signifies the importance of Mutual Fund.A Mutual Fund is a trust that pools the savings of a number of investors who share a commonfinancial goal. The money thus collected is invested by the fund manager in different types ofsecurities depending upon the objective of the scheme. These could range from shares todebentures to money market instruments. The income earned through these investments andthe capital appreciations realized by the schemes are shared by its unit holders in proportion tothe number of units owned by them. Since small investors generally do not have adequatetime, knowledge, experience & resources for directly accessing the capital market, they haveto rely on an intermediary, which undertakes informed investment decisions & providesconsequential benefits of professional expertise. A collected corpus can be used to procure adiversified portfolio indicating greater returns has also create economies of scale through costreduction. This principle has been effective worldwide as more & more investors are going themutual fund way. This portfolio diversification ensures risk minimization. The criticality such ameasure comes in when you factor in the fluctuations that characterize stock markets. Theinterest of the investors is protected by the SEBI, which acts as a watchdog. Mutual funds aregoverned by SEBI (Mutual Funds) regulations, 1996. A Mutual Fund is a trust that pools thesavings of a number of investors who share a common financial goal. The money thuscollected is then invested in capital market instruments such as shares, debentures and othersecurities. The income earned through these investments and the capital appreciation realizedis shared by its unit holders in proportion to the number of units owned by them. Thus a MutualFund is the most suitable investment for the common man as it offers an opportunity to investin a diversified, professionally managed basket of securities at a relatively low cost. The flowchart describes broadly the working of a mutual fund:-
4 AMC Savings Trust Investments Unit Unit holders s Returns Registrar SEBI Trust Custodian AMCThe structure of Mutual Funds in India is governed by SEBI (Mutual Fund) Regulations, 1996. It is mandatory to have a three tier structure of Sponsor – Trustee – Asset Management Company. The trust is established by a Sponsor or more than one sponsor who is like a promoter of a company. He appoints the Trustees who are responsible to the investors of the fund. The Trustees of the mutual fund hold its property for the benefit of the unit holders. Asset Management Company (AMC) approved by SEBI is the business face of the mutual fund as it manages all the affairs of the fund by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the funds in its custody.
5Sponsor:The sponsor is the promoter of the mutual fund. The sponsor establishes the Mutual fund ®isters the same with SEBI. He appoints the trustees, Custodians & the AMC with priorapproval of SEBI, & in accordance with SEBI regulations.Trustees:The Mutual Fund may be managed by a Board of trustees a of individuals, or a trust company– a corporate body. Most of the funds in India are managed by board of trustees. While theboard of trustees is governed by the provisions of the Indian trust act, where the trustee is thecorporate body, it would also be required to comply with the provisions of the companies act,1956. the board of trustee company, as an independent body, act as protector of the unit-holders interest.Asset Management Company(AMC):The role of an Asset management companies is to act as the investment manager of the trust.They are the ones who manage money of investors.An AMC takes decisions, compensates investors through dividends, maintains properaccounting & information for pricing of units, calculates the NAV, & provides information onlisted schemes.It also exercises due diligence on investments & submits quarterly reports to the trustees.AMCs have been set up in various countries internationally as an answer to the global problemof bad loans.Custodian:Often an independent organization, it takes custody all securities & other assets of mutualfund. Its responsibilities include receipt & delivery of securities collecting income-distributingdividends, safekeeping of the unit & segregating assets & settlements between schemes.
6Registrars & Transfer Agent(R & T Agent):The Registrars & Transfer Agents(R & T Agents) are responsible for the investor servicingfunction, as they maintain the records of investors in mutual funds. They process investorapplications; record details provide by the investors on application forms; send out to investorsdetails regarding their investment in the mutual fund; send out periodical information on theperformance of the mutual fund; process dividend payout to investor; incorporate changes ininformation as communicated by investors; & keep the investor record up-to-date, by recordingnew investors & removing investors who have withdrawn their funds.SEBI – Securities and Exchange Board of India:Securities and Exchange Board of India(SEBI) is a board (autonomous body) created bythe Government of India in 1988 and given statutory form in 1992 with the SEBI Act 1992with its head office at Mumbai. The Securities and Exchange Board of India is perhaps themost important regulatory body. Similar to the Securities Exchange Commission in the US, it isthe authority that has to always be on its toes. More so, when the markets are doing well andthere are a spate of IPOs (initial public offerings) or FPO‟s (follow-on public offerings) like now.Its main mandate is to protect the interest of investors in the securities markets and to promotethe development of and to regulate the securities markets so as to establish a dynamic andefficient securities market. When investors have complaints against listed companies orregistered intermediaries, SEBI acts as the nodal agency for addressing these complaints, ifthey are not solved directly between the parties concerned, or if the investor is not happy withthe response.SEBI has listed certain categories of grievances for which investors can file complaints with it.These include: Non-receipt of refund order or allotment advice in case of investment in IPOs, FPOs and rights issues Non-receipt of dividend from listed companies Non-receipt of share certificates after transfer from listed companies
7 Non-receipt of debentures after transfer or non-receipt of interest or principal on redemption and non-receipt of interest on delayed repayment Non-receipt of rights offer letterCollective investment schemes like plantation companies. Investors can send complaints toSEBI regarding non-receipt of invested principal and returns there from. Derivative trading -Many investors sign legal papers empowering the broker to trade on their behalf, withoutproper knowledge and wake up on seeing their margin money eroded due to sustained losses.In other instances, major complaints are against brokers squaring off outstanding derivativespositions due to lack of margins or not giving the client adequate time or notice, leading tohuge losses for investors/traders. These happen especially when markets turn volatile of seesustained and large one- way movements. There are other areas such as corporategovernance, corporate restructuring, acquisitions, buybacks, delisting and other compliancerelated issues for which one could approach SEBI. For all this one can File complaints electronically on the SEBI website Get a complaint registration number Track the status of the complaint online SEBI looks into the merit of the complaint and takes up the matter with the concerned company or intermediaryIt can also direct intermediaries to redress the investor complaints satisfactorily if the casemerits such an order one can also send grievances by post or fax. In other words, there is awide range of issues that come under the jurisdiction of SEBI. And the onus is entirely on it tokeep the stocks markets healthy.TYPES OF MUTUAL FUND SCHEMES: By Structure o Open-ended schemes o Close-ended schemes o Interval schemes
8 By Investment Objective o Growth schemes o Income schemes o Balance schemes o Money Market schemes Other types of schemes o Tax Saving schemes o Special schemes o Index schemes o Sector specific schemesSchemes according to maturity period:A mutual fund scheme can be classified into open-ended scheme or close-ended schemedepending on its maturity period.Open-ended Fund / SchemeAn open-ended fund or scheme is one that is available for subscription and repurchase on acontinuous basis. These schemes do not have a fixed maturity period. Investors canconveniently buy and sell units at Net Asset Value (NAV) related prices which are declared ona daily basis. The key feature of open-end schemes is liquidity.Close-ended Fund / SchemeA close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund isopen for subscription only during a specified period at the time of launch of the scheme.Investors can invest in the scheme at the time of the initial public issue and thereafter they canbuy or sell the units of the scheme on the stock exchanges where the units are listed. In order
9to provide an exit route to the investors, some close-ended funds give an option of selling backthe units to the mutual fund through periodic repurchase at NAV related prices.Interval scheme:Interval funds combine the features of open-ended & closed ended schemes. They are openfor sale or redemption during pre-determined intervals at NAV related prices.Schemes according to Investment Objective:A scheme can also be classified as growth scheme, income scheme, or balanced schemeconsidering its investment objective. Such schemes may be open-ended or close-endedschemes as described earlier. Such schemes may be classified mainly as follows:Growth / Equity Oriented Schemes:The aim of growth funds is to provide capital appreciation over the medium to long- term. Suchschemes normally invest a major part of their corpus in equities. Such funds havecomparatively high risks. These schemes provide different options to the investors likedividend option, capital appreciation, etc. and the investors may choose an option dependingon their preferences. The investors must indicate the option in the application form.Income / Debt Oriented SchemeThe aim of income funds is to provide regular and steady income to investors. Such schemesgenerally invest in fixed income securities such as bonds, corporate debentures, Governmentsecurities and money market instruments. Such funds are less risky compared to equityschemes. These funds are not affected because of fluctuations in equity markets.Balanced FundThe aim of balanced funds is to provide both growth and regular income as such schemesinvest both in equities and fixed income securities in the proportion indicated in their offerdocuments. These are appropriate for investors looking for moderate growth. They generally
10invest 40-60% in equity and debt instruments. These funds are also affected because offluctuations in share prices in the stock markets. However, NAVs of such funds are likely to beless volatile compared to pure equity funds.Other SchemesTax Saving SchemesThese schemes offer tax rebates to the investors under specific provisions of the Income TaxAct, 1961 as the Government offers tax incentives for investment in specified avenues. e.g.Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds alsooffer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities.Their growth opportunities and risks associated are like any equity-oriented scheme.Gilt FundThese funds invest exclusively in government securities. Government securities have nodefault risk. NAVs of these schemes also fluctuate due to change in interest rates and othereconomic factors as is the case with income or debt oriented schemes.Index FundsIndex Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&PNSE 50 index (Nifty), etc these schemes invest in the securities in the same weight agecomprising of an index. NAVs of such schemes would rise or fall in accordance with the rise orfall in the index, though not exactly by the same percentage due to some factors known as"tracking error" in technical terms. Necessary disclosures in this regard are made in the offerdocument of the mutual fund scheme.Sector specific funds / schemesThese are the funds/schemes which invest in the securities of only those sectors or industriesas specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer
11Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on theperformance of the respective sectors/industries. While these funds may give higher returns,they are more risky compared to diversified funds. Investors need to keep a watch on theperformance of those sectors/industries and must exit at an appropriate time. They may alsoseek advice of an expert.BANKS V/S MUTUAL FUNDS:Mutual Funds are now also competing with commercial banks in the race for retail investor‟ssavings and corporate float money. The power shift towards mutual funds has becomeobvious. The coming few years will show that the traditional saving avenues are losing out inthe current scenario. Many investors are realizing that investments in savings accounts are asgood as locking up their deposits in a closet. The fund mobilization trend by mutual fundsindicates that money is going to mutual fund in a big way.CATEGORY BANKS MUTUAL FUNDSReturns Low HighAdministrative exp. High LowRisk Low ModerateInvestment options Less MoreNetwork High penetration Low but improvingLiquidity At a cost BetterQuality of assets Not transparent Transparent Minimum balanceInterest calculation between 10th & 30th of Everyday every month Maximum Rs.1 lakh onGuarantee None deposits
12FREQUENTLY USED TERMSNet Asset Value (NAV)Net Asset Value is the market value of the assets of the scheme minus its liabilities. The perunit NAV is the net asset value of the scheme divided by the number of units outstanding onthe Valuation Date. The net asset value (NAV) is the market value of the funds underlyingsecurities. It is calculated at the end of the trading day. Any open-end funds buy or sell orderreceived on that day is traded based on the net asset value calculated at the end of the day.The NAV per units is such Net Asset Value divided by the number of outstanding unitsNAV = Market Value of Assets - Liabilities Units OutstandingFor example., if the market value of the securities of a mutual fund scheme is Rs. 200 lakhs &the mutual fund has issued 10 lakhs units at Rs. 10 to the investors, then the NAV per unit ofthe fund is Rs.20. NAV is required to be disclosed by the mutual funds on a regular basis- dailyor weekly- dependingBETA RATIO:A high beta is good or bad depending on the state of the market. If the market sentiments arebullish, i.e., the market is seeing a rise in general, then a high beta stock is better and if themarket sentiment is bearish then low beta is preferred. A beta of 1 indicates that the securitysprice will move with the market. A beta less than 1 means that the security will be less volatilethan the market. A beta greater than 1 indicates that the securitys price will be more volatilethan the market.R - SQUAREDA statistical measure that represents the percentage of a funds or securitys movements thatare explained by movements in a benchmark index. R-squared values range from 0 to 100. An
13R-squared of 100 means that all movements of a security are completely explained bymovements in index.A higher R-squared value will indicate a more useful beta figure.SHARP RATIOHigh returns are generally associated with a high degree of volatility. The Sharpe ratiorepresents this trade off between risk and returns. At the same time it also factors in the desireto generate returns, which are higher than those from risk free returns.The greater a portfolios Sharpe ratio, the better its risk-adjusted performance is.Sharpe Index = (Ri – Rf) / SiWhere,Ri = Return on Fund.Rf = Risk free rate of Return.Si = Standard Deviation of the fund.EXPENSE RATIOThe percentage of total fund assets that is used to cover expenses associated with theoperation of a mutual fund. This amount is taken out of the funds assets and lowers the returnthat fund holders achieve. These expenses include management fees and operatingexpenses. So lesser the expense ratio the better it is for the investorsSale PriceIs the price you pay when you invest in a scheme or NAV a unit holder is charged whileinvesting in an open-ended scheme is sale price. Also called Offer Price. It may include a salesload if applicable.
14Repurchase PriceIs the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price.Redemption PriceIs the price at which open-ended schemes repurchase their units and close-ended schemesredeem their units on maturity. Such prices are NAV related.Sales LoadIs a charge collected by a scheme when it sells the units. Also called, „Front-end‟ load. A loadis one that charges a percentage of NAV for entry or exit. That is, each time one buys or sellsunits in the fund, a charge will be payable. This charge is used by the mutual fund formarketing & distribution expenses. Suppose the NAV per unit is Rs.10. if the entry as well asexit load charged were 1%, then the investors who buy would be required to pay Rs.10.10 &those who offer their units for repurchase to the mutual fund will get only Rs.9.9 per unit.No LoadSchemes that do not charge a load are called „No Load‟ schemes. A no-load fund is one thatdoes not charge for entry or exit. It means the investors can enter the fund/scheme at NAV andno additional charges are payable on purchase or sale of units.WHY TO INVEST IN MUTUAL FUNDS:A proven principle of sound investment is –do not put all eggs in one basket. Investment inmutual funds is beneficial due to following reasons. They help in pooling of funds and investing in large basket of shares of different companies. Thus by investing in diverse companies, mutual funds can protect against unexpected fall in value of investment.
15 An average investor does not have enough time and resources to develop professional attitude towards their investment. Here professional fund managers engaged by mutual funds take desirable investment decision on behalf of investors so as to make better utilization of resources. Investment in mutual funds is comparatively more liquid because investor can sell the units in open market or can approach mutual fund to repurchase the units at net asset value depending upon the type of scheme. Investors can avail tax rebates by investing in different tax saving schemes floated by these funds, approved by the government.STRUCTURE OF THE INDIAN MUTUAL FUND INDUSTRY There are many entities involved and the diagram below illustrates the organizational set upof a mutual fund:Mutual funds have a unique structure not shared with other entities such as companies offirms. It is important for employees & agents to be aware of the special nature of this structure,because it determines the rights & responsibilities of the fund‟s constituents viz., sponsors,trustees, custodians, transfer agents & of course, the fund & the Asset ManagementCompany(AMC) the legal structure also drives the inter-relationships between these
16constituents. The structure of the mutual fund India is governed by the SEBI (Mutual Funds)regulations, 1996. These regulations make it mandatory for mutual funds to have a structure ofsponsor, trustee, AMC, custodian. The sponsor is the promoter of the mutual fund, & appointsthe trustees. The trustees are responsible to the investors in the mutual fund, & appoint theAMC for managing the investment portfolio. The AMC is the business face of the mutual fund,as it manages all affairs of the mutual fund. The mutual fund & the AMC have to be registeredwith SEBI. Custodian, who is also registered with SEBI, holds the securities of variousschemes of the fund in its custody. The largest categories of Mutual Funds are the onesfloated by the private sector and by Foreign Asset Management Companies. The largest ofthese are Prudential ICICI AMC and Birla Sun Life AMC. The aggregate corpus of assetsmanaged by this category of AMCs is in excess of Rs.350 bn.Earlier the Indian Mutual Fund industry was dominated by the Unit Trust of India which has atotal corpus of Rs.700 bn collected from more than 20 million investors. The UTI has manyfunds/schemes in all categories i.e. equity, balanced, income etc. with some being open-endedand some being closed-ended. The Unit Scheme 1964 commonly referred to as US 64, whichis a balanced fund, is the biggest scheme with a corpus of about Rs.200 bn. UTI was floatedby financial institutions and is governed by a special Act of Parliament. Most of its investorsbelieve that the UTI is government owned and controlled, which, while legally incorrect, is truefor all practical purposes. The second largest categories of mutual funds are the ones floatedby nationalized banks. Can bank Asset Management floated by Canara Bank and SBI FundsManagement floated by the State Bank of India are the largest of these. GIC AMC floated bythe General Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC aresome of the other prominent ones. The aggregate corpus of funds managed by this category ofAMCs is about Rs.200 bn.
17RISKS ASSOCIATED WITH MUTUAL FUNDS: MAX RISK High risk Aggressive growth Aggressive income Average risk Growth and income Low risk Conservative income and reasonable stability Lowest risk Maximum safety and stability
18The above pyramidal speaks about the different types of risk and the respective growthassociated with the risk. It can be seen that, at the lower level risk is very less and their moresafety. This kind of portfolio is usually preferred by the in the third level of their life cycle i.e.mainly people who are pension holders. As we move on to the pyramid we see that there isaverage risk and reasonable growth and income. These are people in second level of their lifecycle who are well settled in life who are ready to take the calculated risk. The last leveldepicts a picture of people who can assume the highest risk. these are people who have juststarted their career who can take high risk.The most important relationship to understand is the risk-return trade-off. Higher the riskgreater the returns/loss and lower the risk lesser the returns/loss. Hence it is up to you, theinvestor to decide how much risk you are willing to take. In order to do this you must first beaware of the different types of risks involved with your investment decision.MARKET RISKSometimes prices and yields of all securities rise and fall. Broad outside influences affectingthe market in general lead to this. This is true, may it be big corporations or smaller mid-sizedcompanies. This is known as Market Risk. A Systematic Investment Plan (“SIP”) that works onthe concept of Rupee Cost Averaging (“RCA”) might help mitigate this risk.CREDIT RISKThe debt servicing ability (may it be interest payments or repayment of principal) of a companythrough its cash flows determines the Credit Risk faced by you. This credit risk is measured byindependent rating agencies like CRISIL who rate companies and their paper. An „AAA‟ ratingis considered the safest whereas a „D‟ rating is considered poor credit quality. A well-diversified portfolio might help mitigate this risk.
19INFLATION RISKThings you hear people talk about: “Rs. 100 today is worth more than Rs. 100 tomorrow.”“Remember the time when a bus ride coasted 50 paisa?” “Mehangai Ka Jamana Hai.”The root cause , Inflation. Inflation is the loss of purchasing power over time. A lot of timespeople make conservative investment decisions to protect their capital but end up with a sumof money that can buy less than what the principal could at the time of the investment. Thishappens when inflation grows faster than the return on your investment. A well-diversifiedportfolio with some investment in equities might help mitigate this risk.INTEREST RATE RISKIn a free market economy interest rates are difficult if not impossible to predict. Changes ininterest rates affect the prices of bonds as well as equities. If interest rates rise the prices ofbonds fall and vice versa. Equity might be negatively affected as well in a rising interest rateenvironment. A well-diversified portfolio might help mitigate this risk.
20POLITICAL RISK:Changes in government policy and political decision can change the investment environment.They can create a favorable environment for investment or vice versa.LIQUIDITY RISKLiquidity risk arises when it becomes difficult to sell the securities that one has purchased.Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well asinternal risk controls that lean towards purchase of liquid securities. You have been readingabout diversification above, but what is it? Diversification The nuclear weapon in your arsenalfor your fight against Risk. It simply means that you must spread your investment acrossdifferent securities (stocks, bonds, money market instruments, real estate, fixed deposits etc.)and different sectors (auto, textile, information technology etc.). This kind of a diversificationmay add to the stability of your returns,COMPETITION IN MUTUAL FUNDS INDUSTRYThe most important trend in the mutual fund industry is the aggressive expansion of the foreignowned mutual fund companies and the decline of the companies floated by nationalized banksand smaller private sector players. Many nationalized banks got into the mutual fund businessin the early nineties and got off to a good start due to the stock market boom prevailing then.These banks did not really understand the mutual fund business and they just viewed it asanother kind of banking activity. Few hired specialized staff and generally chose to transferstaff from the parent organizations. The performance of most of the schemes floated by thesefunds was not good. Some schemes had offered guaranteed returns and their parentorganizations had to bail out these AMCs by paying large amounts of money as the differencebetween the guaranteed and actual returns. The service levels were also very bad. Most ofthese AMCs have not been able to retain staff, float new schemes etc. and it is doubtfulwhether, barring a few exceptions, they have serious plans of continuing the activity in a majorway. The experience of some of the AMCs floated by private sector Indian companies wasalso very similar. They quickly realized that the AMC business is a business, which makes
21money in a long term and requires deep-pocketed support in the intermediate years. Somehave sold out to foreign owned companies, some have merged with others and there isgeneral restructuring going on. The foreign owned companies have deep pockets and havecome in here with the expectation of a long haul. They can be credited with introducing manynew practices such as new product innovation, sharp improvement in service standards anddisclosure, usage of technology, broker education and support etc. In fact, they have forcedthe industry to upgrade itself and service levels of organizations like UTI have improveddramatically in the last few years in response to the competition provided by these.
22INTRODUCTION TO THE COMPANY :COMPANY PROFILE :-SBI Mutual Fund is India‟s largest bank sponsored mutual fund and has an enviable trackrecord in judicious investments and consistent wealth creation SBI Mutual Fund Set up on 29June 1987, SBI Mutual Fund is a joint venture between the State Bank of India, Indias largestbank and Society General Asset Management of France, one of the worlds leading fundmanagement companies. SBI Funds Management Private Limited was incorporated on 7thFebruary 1992 to manage assets of the mutual fund. Mentioned below are the schemesoffered by SBI Mutual Fund for investment in India:PRODUCTS :-There are six basic asset classes, which we manage, and variations of these six asset classesfrom various products:1. Equity Schemes-The primary objective of the equity asset class is to provide capital growth / appreciation.2. Hybrid Schemes-These schemes invest in a mixture of debt and equity securities in different proportions.3. Debt / Income Schemes-The schemes in this asset class generally invest in fixed income securities.
23 4. Fixed Maturity Plans-These are closed ended debt schemes with a fixed maturity date. 5. Liquid Schemes-The strategy for liquid funds include investments in short investment. 6. Exchange Traded Funds-ETFs are nothing but a basket of securities that are traded on the stock exchange. RESEARCH METHODOLOGYResearch methodology is a systematic way to solve a research problem. It may be understood as ascience of studying how the research is done systematically. TITLE OF STUDY : “Investor‟s Perception about Mutual Fund” DURATION OF PROJECT: from 04 June 2012 to 18 July 2012 (45 days) OBJECTIVE OF STUDY : 1. To know the perception of investors 2. To know people aware of Mutual Fund 3. To study the behavior of investors & general mass 4. To study the risk associated with MF 5. To analyze the yield & returns associated with Mutual fund SAMPLE SIZE:- The study is based on survey of 250 investors who have invested in mutual fund through aquestionnaire.
24 SAMPLING TECHNIQUE:- Random Sampling UNIVERSE :- Udaipur RESEARCH DESIGN:- It is a task of defining the research problem by preparing the design of research project. Research design used for this study is descriptive which describes the nature of the people while making the investments in Mutual Funds. This type of research is one, which aims at finding new relationships. Since we are not having any control over the variables in this study, relevant result is calculated with this study through facts available. The design decision is concerned with what, why, when and where of the study. LIMITATION OF STUDY:- Time was one of the limiting factors. 45 days duration was really a short period to conduct a survey like this. Besides time, resources have played the biggest constraint for the research work. Some sampling and non-sampling errors may have crept into the study. The selected sample may or may not be considered as a true representative of the whole population. DATA COLLECTION:- Both the primary and the secondary data were used in the study; Primary data is totally fresh &is collected for the first time, for collecting primary data questionnaire was prepared for finding theperception of investors. The customers filled up the questionnaire & the secondary data are those,which have been already collected & analyzed. It is published & available on different media for thisstudy. Secondary data was collected through magazine & Internet.
25METHODOLOGY:- Prepare a list of information needed Frame questionnaire Collect information Convert information into data and graph Analyses and interpret DATA ANALYSIS AND INTERPRETATIONQ.1 Analysis of income group per month: 25 20 15 10 5 0 below Rs1oooo Rs 10000 to 15000 Rs 15000 to 25000 above Rs 25000AnalysisMaximum respondents lie in group of 15000 to 25000 and minimum lie in group of below10000.
26Q.2 what type of investment plan is liked most by investors? Others Bank 8% Insurance 11% 25% Share Market Gold 17% 3% Mutual Fund 36%AnalysisThrough analysis It is found that people prefer most mutual fund and then insurance and thenshare market.Q. 3 How did investors come to know about Mutual Fund?
27 by direct salesperson of company By magazine 6% 9% by newspaper 18% by friends 25% by ad 17% by tax advisor by brokers 10% 15% Analysis In this research It is found that most of the people came to know about Mutual Fund through theirfriends and then newspapers, advertisement, brokers, tax advisor respectively. Q. 4 Why investors prefer Mutual Fund ?
28 For safety for good returns for liquidity for tax saving benefits 16% 8% 13% 63%Analysis 63% investors invest in Mutual Fund due to high returns while 16% prefer Mutual Fund for tax saving benefits .13% choose Mutual Fund for liquidity and 8% for safety. Q.5 Which asset management company is preferred most?
29 OTHER HDFC 23% 14% SUNDARAM 9% RELIANCE 31% FRANKLIN TEMPLTON DSP 20% 3% Analysis: In my research I found that most of the investors invest in Reliance Mutual Fund with 31%, 20% in Franklin Templeton, 14% in HDFC, 9% in Sundram, 3% in DSP and 23% in others. Q6. How many persons know about Mutual Funds, Debt and Balance ? Analysis of awareness of different funds of Mutual Fund6040200 Yes No Analysis From my sample size of 50 respondents , 92% respondents know about different Funds of mutual Fund like Equity, Debt, Balance and 8% persons don‟t know.
30 Most preferred Funds for investment by respondents Most preferd Fund by investors 35 30 25 20 15 10 5 0 Equity Debt Balance OthersQ.7 How many investors are aware about Mutual Fund’s working ? Awareness about how Mutual Fund works No 16% Yes 84%AnalysisI found in my research that most of the investors are aware about Mutual Fund‟s working, only 16%investors do not know about it and are interested in knowing how Mutual Fund works.
31 Q. 8 For how long period investors want to invest in Mutual Fund? ‘Duration of investment’ 45 40 35 30 25 20 15 10 5 0 Long term Short term Analysis- Around 80% investors think that long term investment in Mutual Fund is beneficial. Q.9 What do investors consider mostly at the time of investment in Mutual Fund? companys brand name high returns previous years performance services provided by company portfolio of fund 30% 20% 25% 21% 4% AnalysisOn the analysis of data collected around 30% investors opted for Mutual Fund due to portfolio of fund.After that high returns , company‟s brand name & previous year‟s performance are also important.
32Q.10 Is there relation between investment in Mutual Fund and volatility of market? 40 30 20 10 0 Yes No Cant sayAnalysis- On the analysis of data collected out of 50 respondents 74% believe that ups and down ofmarket is affecting investment in Mutual Fund as ultimately funds are put in share market while 20%investors don‟t think so .6% investors have no idea about it.Q.11 How much investors are satisfied with services provided by Cant say No Yes 0 5 10 15 20 25 30 35 40 45AnalysisMost of the investors are satisfied with services of mutual fund companies only 7 respondents are notsatisfied one investor was not able to answer. Dissatisfied investors want that they should be given
33timely information about fund‟s value and expert‟s advice about funds. They also want informationabout new changes in schemes. SWOT ANALYSIS OF MUTUAL FUNDMutual fund as an investment tool can be measured on various parameters by the investors. Theinvestors must have adequate knowledge of the product that he intends to invest in and thus a SWOTanalysis of mutual fund is imperative. With this knowledge, the investors can compare variousinvestment tools.STRENGTHSDiversification of RiskProfessional ManagementLiquidityReturn PotentialLow CostsTransparencyFlexibilityChoice of schemesWEAKNESSESTaxationManaging portfolio of fundsProne to market riskOPPORTUNITIES
34 Although the Indian mutual fund industry has grown over the years in a very aggressive manner, the opportunities for the industry to grow further and become a dominant force in the Indian economy are widespread. The opportunities for the Indian mutual fund industry are illustrated as follows: Untapped saving market Rural India Spread of awareness Tailor-made product Growing Indian capital market THREATS Competition from Banks Skepticism among investors. Fraudulent investments Unawareness FACT AND FINDINGS1) Most of the respondents prefer MUTUAL FUNDS as a better option for Investment. People prefer Mutual funds, Insurance, and Shares as the first three preferences of investment.2) Most of the people are aware about the mutual fund as an investment option.3) Around 16% of people who are aware about the mutual fund are not aware about the working of mutual funds4) Most of the respondents select the company to invest in mutual funds on the basis of portfolio of fund which is followed by high returns and previous year‟s performance. On the basis of the data collected it was observed that 30% of people are inclined towards the MUTUAL FUNDS mainly due to portfolio of fund.
355) From the data available through survey we can easily make out that 25% of people buy mutual funds from a company on the basis of returns and 21% of people buy mutual funds from a company on the basis of previous year‟s performance and 20% on the basis of company‟s brand name.6) People mostly prefer Reliance Asset management Company for investments and Franklin Templeton as the 2nd preference..7) Around 84% respondents are satisfied with services of mutual fund companies and their performance. Rest want to have timely information regarding expert‟s advice, fund‟s value and new changes in fund‟s scheme.8) Around 74% investors believe that ups and down of share market is affecting investment in Mutual Fund adversely. They think the reason behind this is that fund‟s money are put into share market to a great extent. Most of the respondents think that long term investment in mutual fund brings high returns and low risks. 9) Around 92% investors are aware about different funds such as debt, equity, balance etc. and most of the respondents prefer equity fund for its benefit of high returns. CONCLUSIONS In a nutshell, I have learned various practical aspects of trading in the stock market. I have made calls in the initial days of training so as to generate maximum leads. In addition, I did personal meetings with clients in order to close the deals. I handled the queries opening of accounts, trading procedures etc. I also assisted in executing trades from the existing clients so as to get brokerage for the company. During the eight years of study period, the IMFI had shown a good progress in terms of number of private sector Indian mutual funds, number of schemes launched, funds mobilized and assets under management. There had been a good number of schemes been launched particularly in close-end type with income objective. The hallmark of any mutual fund is to outperform the market both in rising and falling markets besides ensuring benefits of diversification. Of the sample schemes, Can growth Plus Scheme, Franklin India Blue-chip scheme, Franklin India Prima Scheme, HDFC Capital Builder Scheme and SBI Magnum Multiplier Plus scheme outperformed the market in terms of absolute returns
36and Sharpe index. While Only SBI Magnum Multiplier Plus scheme outperformed market interms of Trey nor index and also had positive Jensen alpha. All the three risk-adjustedperformance measures showed significant agreement in ranking the sample schemes. Ofthe sample schemes studied, SBI Magnum Multiplier Plus Scheme topped the list in all thethree portfolio performance models. All the sample schemes (except LIC MF EquityScheme) ensured positive returns due to stock selection skills of fund managers. Thevariance explained by the market was high in the case of SBI Magnum Multiplier Plusscheme. The market performance had a significant positive influence on schemeperformance in case of all the schemes covered under the study. The present NAV ispositively significantly correlated with that of its past NAV but the impact got reduced as thetime lag increased. The survey of investors‟ perception revealed that, profile of investorshas a significant impact on the investor‟s decisions relating to investments and particularlymutual fund investments. Investors had high preference for bank deposits while brokerspreferred equity shares. Regular income, safety, profitability and tax benefits motivatedinvestors in the choice of scheme. Private sector joint venture (predominantly) Indianmutual funds were highly preferred by both investors and brokers. Both investors andbrokers prefer growth schemes followed by income schemes. Brokers / agents were themain source of information about mutual funds. According to investors, the most importantbenefit of mutual funds was profitability while portfolio diversification, liquidity ofinvestment and professional management were very important for brokers. Quality ofservice was the most important determinant of success for mutual fund according toinvestors, brokers and fund managers. Goodwill was the main criterion of choosing mutualfund organization for all the three categories of respondents. For investors, capitalappreciation influenced the choice of mutual fund scheme. For brokers, return oninvestment and safety affected the choice of mutual fund schemes. For fund managers,capital appreciation, liquidity and portfolio manager‟s background were important criteria ofchoosing mutual fund schemes. Very few investors were fully satisfied while majority weremoderately satisfied with the performance, opportunities provided, and services offered bythe IMFI. Investors and fund managers agreed that, investing in mutual funds were lessrisky compared to shares. Brokers and fund managers highly agreed that mutual fundswere more suitable to small investors who were otherwise hesitant of entering into capitalmarket. Fund managers viewed that mutual funds have the ability to weather the marketfluctuations and accepted that investing in funds is much better in terms of returns thandepositing money in banks. Brokers opined that risk and return characteristics of Indianmutual funds were not in conformity with their stated objectives.
37 SUGGESTIONSIn my research I found that most of the investors are aware about mutual fund as investment optionbut they don‟t have sufficient knowledge about mutual fund working, schemes, and NAV of funds. Soin order to increase number of investors following suggestion should be taken into account Arrange for presentations in schools, colleges, corporate offices, and public places. Arrange for educational seminars regularly. Regular advertisement of schemes of respective Mutual Fund company in Television, newspaper, and other business magazines to spread awareness. Investors should be satisfied by providing them timely information regarding schemes, statements, and NAV of different funds. The analysis of the sample investors‟ opinion shows that majority were moderately satisfied with the performance, investment opportunities and services offered by the Indian mutual funds industry. However, the sample mutual fund schemes were also not performing up to their expectations and does not provide adequate returns commensurate with the risk involved. Hence, for the better future of the Indian Mutual Fund Industry the following suggestions are made: It is absolutely necessary to harness the savings of the nation especially from rural and semi-urban areas into financial assets and the units of mutual funds should certainly become one such asset that can attract these savings through a wide spread and efficient network of operations. Mutual funds should build confidence in the existing unit holders as well as the public not covered so far. Mutual funds have to prove as an ideal investment vehicle for retail investors by way of assuring better returns in relation to the risk involved and by way of better customer services. Mutual funds as institutional investors have to ensure professional market analysis, optimum diversification of portfolio, minimizing of risk and optimizing of return. The fund managers have to provide the benefits of professional management by way of market timing and stock selection skills. The Asset Management companies by way of superior management, efficient market forecasting have to ensure not only out performance but also consistency in the performance. While millions of potential investors are not fully aware of the modes of investments, most of the investors who have invested are not fully aware of their rights and obligations. Hence, the Government should arrange for more number of massive educational programs on investment avenues besides publishing „Investors guide‟ enabling the investing public to take more informed investment decision. It would be more enlightening and effective if awareness programs were organized at the collegiate level so that students could become aware of investment avenues even before they start earning. SEBI and AMFI could carryout research works to introduce many mutual fund products proved successful in foreign countries but not yet introduced in India. Mutual fund activities could be linked with the banking institutions, through electronic clearing
38and plastic money for easy transactions and e-units of mutual funds. The role of investors‟redress cell has to become more dynamic, efficient and wide spread so as to reach out toinvestors rebuilding confidence among existing unit-holders and generate interest among thepotential investors. Mutual fund Ombudsman could be established for early settlement ofdisputes. Investors have to make self-analysis of one‟s needs, risk-bearing capacity, andexpected returns so as to develop a prudent investment ideology. Investors have to be awareof the mutual fund regulations, the channeling of money, objectives of schemes, besidesensuring better diversification of investment. ANNEXUREQUESTIONNAIREPERSONAL DETAIL :Name :- ……………………………………………………………….Occupation :- ………………………………………………………………..Address & Phone :- ……………………………………………………………….. ……………………………………………………………….. 1. Which income group do you belong to? (a) Below Rs. 10,000 (b) Rs.10,000 to 15,000 (c) Rs.15,000 to 25,000 (d) Above Rs.25,000 2. Which type of investment plan do you like most? (a)Insurance (b)Gold (c)Mutual Fund (d)Share Market (e)Bank (f)Others 3. How did you come to know about Mutual Fund?(a) By Magazine (b) By Friends (c) By Newspaper(d) By Brokers (e) By Advertisement (f) By Tax advisor(g)By Direct salesperson of company
394. Why do you invest in Mutual Funds? (a) For safety (b) For good returns (c) For liquidity (d) For tax saving benefit5. In which of the following Mutual Fund companies you have made your investment?(a) HDFC (b) Reliance (c) Franklin Templeton(d) DSP (e) Sundaram (f) Other6. Are you aware about different funds of Mutual Fund like equity, debt and balance?(a)Yes (b)No7. If yes then what type of funds do you prefer for investment in Mutual Fund? (a) Equity (b) Debt (c) Balance (d) Other8. Are you aware about how Mutual Fund works?(a)Yes (b) No9. If no, then are you interested in knowing about Mutual Fund‟s working?(a)Yes (b)No10.. For how long period do you want to invest your money in Mutual Funds?(a) Short term (b) Long term11. What do you consider mostly when you are going to invest in Mutual Funds?(a) Company‟s brand name (b) High returns(c) Previous year‟s performance (d) Services provided by company(e) Portfolio of Fund
4012.Is present scenario of market affecting consumer‟s interest of investing in Mutual Fund &Why? (a) Yes (b)No………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………13. Are you satisfied with services provided by different Mutual Fund‟s companies?(a)Yes (b) No14.What type of improvements do you want in services. ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
41 BIBLIOGRAPHY 1. Research Methodology, Author- C.R.Kothari 2. Marketing Management, Author- Philip KotlerWebsiteswww.sbimutualfund.inwww.amfindia.comwww.bseindia.comwww.sebi.gov.inwww.mutualfundindia.comwww.personalfn.comwww.moneycontrol.comwww.stockcccharts.com