Mutual fund

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Various Investment Instruments:-
The options available in the market for investing your savings are
continually increasing. To decide which investment instruments are
suitable for you, you need to know their respective features and why
they may be suitable for a particular investment objective. Investment
instruments can be categorized according to their fundamental
characteristics such as risk level, income return, capital gain, etc.
Generally speaking, there are three major investment instruments in the
market: EQUITIES, BONDS and MONEY MARKET
INSTRUMENTS. Risk and Expected Return of various Investment
Instruments.

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EQUITIES:-
Definition:-
Equity is a security that is a claim on the earnings and assets of a
corporation.
Return:-
Equity's return mainly consists of 2 components: 1) dividend and 2)
capital appreciation. Dividend is a distribution of earnings. However, not
all corporations will pay out dividends to equity holders. In such case,
the return of equity may mostly depend on capital appreciation in the
open market. Subject to the potential growth in capital generated by
long-term increases in corporate revenues and earnings, equity may offer
considerable opportunity for appreciation in value.
Risk:-
Of course, there is a price for this return: you must assume the risk of
losing some or all of your investment because of its volatility. Besides,
in cases where the corporation goes bankrupt, equity holders will not
receive their money until the creditors and preferred shareholders have
received their respective share of the leftover assets. Thus, in general,
the risk level on investment in equity is considerably high.
What Does Equity Mean?
There are several different meanings of equity however it is most
commonly known in accounting and finance as the residual claim or
interest of the most junior class of investors in assets, after all liabilities
are paid. If liability exceeds these assets then a negative equity exists. In
an accounting context, a shareholders' equity or stockholders' equity
represents the remaining interest in assets of a company that are spread
among individual shareholders of a common or preferred stock.

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At the start of a business, owners put some funding into the business to
finance operations. This creates a liability on the business in the shape of
capital as the business is a separate entity from its owners. Businesses
can be considered to be, for accounting purposes, sums of liabilities and
assets which is the accounting equation. After liabilities have been taken
into account, the positive remainder is deemed the owner's interest in the
business.
This definition is helpful in understanding the liquidation process in case
of bankruptcy. At first, all the secured creditors are paid against
proceeds from assets. Afterward, a series of creditors, ranked in priority
sequence, have the next claim on the residual proceeds. Ownership
equity is the last or residual claim against assets, paid only after all other
creditors are paid. In such cases where even creditors could not get
enough money to pay their bills, nothing is left over to reimburse the
owners' equity. Therefore the owners' equity is reduced to zero.
Ownership equity is also known as risk capital or liable capital.
Equity is also the name given to the set of legal principles in
jurisdictions following the English common law tradition that
supplements strict rules of law where their application would operate
harshly. In civil legal systems, broad 'general clauses' allow judges to
have similar leeway in applying the code.
Equity is commonly said to 'mitigate the rigor of common law', allowing
courts to use their discretion and apply justice in accordance with natural
law. In practice, modern equity is limited by substantive and procedural
rules, and English and Australian legal writers tend to focus on technical
aspects of equity. There are 12 'vague ethical statements' that guide the
application of equity, and an additional five can be added.

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Types of Equity
There are a number of types of equity, each with different
characteristics.
Common stock or ordinary shares:-
Common stock, as it is known in the United States, or ordinary shares,
according to British terminology, is the most important form of equity
investment. An owner of common stock is part owner of the enterprise
and is entitled to vote on certain important matters, including the
selection of directors. Common stock holders benefit most from
improvement in the firm's business prospects. But they have a claim on
the firm's income and assets only after all creditors and all preferred
stock holders receive payment. Some firms have more than one class of
common stock, in which case the stock of one class may be entitled to
greater voting rights, or to larger dividends, than stock of another class.
This is often the case with family owned firms which sell stock to the
public in a way that enables the family to maintain control through its
ownership of stock with superior voting rights.
Preferred stock:-
Also called preference shares, preferred stock is more akin to bonds than
to common stock. Like bonds, preferred stock offers specified payments
on specified dates. Preferred stock appeals to issuers because the
dividend remains constant for as long as the stock is outstanding, which
may be in perpetuity. Some investors favour preferred stock over bonds
because the periodic payments are formally considered dividends rather
than interest payments, and may therefore offer tax advantages. The
issuer is obliged to pay dividends to preferred stock holders before
paying dividends to common shareholders. If the preferred stock is
cumulative, unpaid dividends may accrue until preferred stock holders
have received full payment. In the case of non cumulative preferred
stock, preferred stock holders may be able to impose significant
restrictions on the firm in the event of a missed dividend.

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Convertible preferred stock:-
This may be converted into common stock under certain conditions,
usually at a predetermined price or within a predetermined time period.
Conversion is always at the owner's option and cannot be required by the
issuer. Convertible preferred stock is similar to convertible bonds.
Warrants:-
Warrants offer the holder the opportunity to purchase a firm's common
stock during a specified time period in future, at a predetermined price,
known as the exercise price or strike price. The tangible value of a
warrant is the market price of the stock less the strike price. If the
tangible value when the warrants are exercisable is zero or less the
warrants have no value, as the stock can be acquired more cheaply in the
open market. A firm may sell warrants directly, but more often they are
incorporated into other securities, such as preferred stock or bonds.
Warrants are created and sold by the firm that issues the underlying
stock. In a rights offering, warrants are allotted to existing stock holders
in proportion to their current holdings. If all shareholders subscribe to
the offering the firm's total capital will increase, but each stock holder's
proportionate ownership will not change. The stock holder is free not to
subscribe to the offering or to pass the rights to others. In the UK a stock
holder chooses not to subscribe by filing a letter of renunciation with the
issuer.
Issuing shares:-
Few businesses begin with freely traded shares. Most are initially owned
by an individual, a small group of investors (such as partners or venture
capitalists) or an established firm which has created a new subsidiary. In
most countries, a firm may not sell shares to the public until it has been
in operation for a specified period. Some countries bar firms from
selling shares until their business is profitable, a requirement that can
make it difficult for young firms to raise capital.

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Flotation:-
Flotation, also known as an initial public offering (IPOs), is the process
by which a firm sells its shares to the public. This may occur for a
number of reasons. The firm may require additional capital to take
advantage of new opportunities. Some of the firm's original investors
may want it to buy them out so they can put their money to work
elsewhere. The firm may also wish to use shares to compensate
employees, and a public share listing makes this easier as the value of
the shares is freely established in the market place. The flotation need
not involve all or even the majority of the firm's shares. Table 7.3 shows
that the annual value of IPOs in the United States grew sevenfold during
the 199os before collapsing in 2ool. The value of IPOs’ in the UK,
although much smaller, has been less volatile.
Some of the biggest flotation in recent years have involved the
privatization of government owned enterprises, such as Deutsche
Telekom in Germany and YPF, a petroleum company, in Argentina.
Such large firms are often floated in a series of share issues rather than
all at once, because of uncertainty about demand for the shares.
According to the OECD, privatizations raised nearly $6oo billion
between 1996 and 2000, much of which was financed by issuance of
shares. Another source of large flotation is the spinoff of parts of
existing firms. In such a case, the parent firm bundles certain assets, debt
obligations and businesses into the new entity, which initially has the
same shareholders as the parent. Among the largest spin offs in recent
years have been Lucent Technologies, formerly part Of AT&T, and
Delphi, the component manufacturing unit of General Motors Corp. A
third source of large flotation’s has been decisions by the managers of
established companies with privately traded shares to allow limited
public ownership, as in the case of ups, an American package delivery
company.

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Private offering:-
Rather than selling its shares to the public, a firm may raise equity
through a private offering. only sophisticated investors, such as money
management firms and wealthy individuals, are normally allowed to
purchase shares in a private offering, as disclosures about the risks
involved are fewer than in a public offering. Shares purchased in a
private offering are common equity and are therefore entitled to vote on
corporate matters and to receive a dividend, but they usually cannot be
resold in the public markets for a specified period of time.
Secondary offering:-
A secondary offering occurs when a firm whose shares are already
traded publicly sells additional shares to the public called a follow on
offering in the UK or when one or more investors holding a large
proportion of a firm's shares offers those shares for sale to the public.
Firms that already have publicly traded shares may float additional
shares to increase their total capital. If this leaves existing shareholders
owning smaller proportions of the firm than they owned previously, it is
said to dilute their holdings. if the secondary offering involves shares
owned by investors, the proceeds of a secondary offering go to the
investors whose shares are sold, not to the issuer. Table 7.4 provides
data on the extent of secondary offerings in US markets.

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BONDS
Definition:-
Bond is a kind of debt securities issued to raise capital. It generally
represents a promise to repay the principal at the maturity date and
coupons (if any) during its term.
Abond is a debt security, in which the authorized issuer owes the
holders a debt and, depending on the terms of the bond, is obliged to pay
interest (the coupon) to use and/or to repay the principal at a later date,
termed maturity. A bond is a formal contract to repay borrowed money
with interest at fixed intervals (semi annual, annual, sometimes
monthly).
Thus a bond is like a loan: the holder of the bond is the lender (creditor),
the issuer of the bond is the borrower interest. Bonds provide the
borrower with external funds to finance long-term investments, or, in the
case of government bonds, to finance current expenditure. Certificates of
deposit (CDs) or commercial paper are considered to be money market
instruments and not bonds.
Bonds and stocks are both securities, but the major difference between
the two is that (capital) stockholders have an equity stake in the
company (i.e., they are owners), whereas bondholders have a creditor
stake in the company (i.e., they are lenders). Another difference is that
bonds usually have a defined term, or maturity, after which the bond is
redeemed, whereas stocks may be outstanding indefinitely. An exception
is a consol bond, which is a perpetuity (i.e., bond with no maturity).

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Issuance:-
Bonds are issued by public authorities, credit institutions, companies and
supranational institutions in the primary markets. The most common
process of issuing bonds is through underwriting. In underwriting, one
or more securities firms or banks, forming a syndicate, buy an entire
issue of bonds from an issuer and re-sell them to investors. The security
firm takes the risk of being unable to sell on the issue to end investors.
Primary issuance is arranged by bookrunners who arrange the bond
issue, have direct contact with investors and act as advisers to the bond
issuer in terms of timing and price of the bond issue. The book runners'
willingness to underwrite must be discussed prior to opening books on a
bond issue as there may be limited appetite to do so.
In the case of government bonds, these are usually issued by auctions,
called a public sale, where both members of the public and banks may
bid for bond. Since the coupon is fixed, but the price is not, the percent
return is a function both of the prices paid as well as the coupon.
However, because the cost of issuance for a publicly auctioned bond can
be cost prohibitive for a smaller loan, it is also common for smaller
bonds to avoid the underwriting and auction process through the use of a
private placement bond. In the case of a private placement bond, the
bond is held by the lender and does not enter the large bond market.
Sometimes the documentation allows the issuer to borrow more at a later
date by issuing further bonds on the same terms as before, but at the
current market price. This is called a tap issue or bond tap.

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Features
The most important features of a bond are:-
 Nominal, principal, par or face amount:-
The amount on which the issuer pays interest, and which, most
commonly, has to be repaid at the end of the term. Some structured
bonds can have a redemption amount which is different from the
face amount and can be linked to performance of particular assets
such as a stock or commodity index, foreign exchange rate or a
fund. This can result in an investor receiving less or more than his
original investment at maturity.
 Issue price:-
The price at which investors buy the bonds when they are first
issued, which will typically be approximately equal to the nominal
amount. The net proceeds that the issuer receives are thus the issue
price, less issuance fees.
 Maturity date:-
The date on which the issuer has to repay the nominal amount. As
long as all payments have been made, the issuer has no more
obligations to the bond holders after the maturity date. The length
of time until the maturity date is often referred to as the term or
tenor or maturity of a bond. The maturity can be any length of
time, although debt securities with a term of less than one year are
generally designated money market instruments rather than bonds.
Most bonds have a term of up to thirty years. Some bonds have
been issued with maturities of up to one hundred years, and some
do not mature at all. In the market for U.S. Treasury securities,
there are three groups of bond maturities:

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Short term (bills):-
Maturities between one to five year; (instruments with maturities less
than one year are called Money Market Instruments).
Medium term (notes):-
Maturities between six to twelve years;
Long term (bonds):-
Maturities greater than twelve years.
Coupon:- The interest rate that the issuer pays to the bond holders.
Usually this rate is fixed throughout the life of the bond. It can also vary
with a money market index, such as LIBOR, or it can be even more
exotic. The name coupon originates from the fact that in the past,
physical bonds were issued which coupons had attached to them. On
coupon dates the bond holder would give the coupon to a bank in
exchange for the interest payment. Coupons can be paid at different
frequencies. It is generally semi-annual or annual.
Bond issued by the Dutch East India Company in 1623.The "quality" of
the issue refers to the probability that the bondholders will receive the
amounts promised at the due dates. This will depend on a wide range of
factors.

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Types
Bond certificate for the state of South Carolina issued in 1873 under the
state's Consolidation Act.
Receipt for temporary bonds for the state of Kansas issued in 1922.

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Pacific Railroad Bond issued by City and County of San Francisco,
CA. May 1, 1865
Risk:-
The risk level of bond investment is mainly determined by the credit
rating, term and investment strategy of the bond. In general, bond
investment is considered to be at relatively lower risk than equity or
derivative. However, this is only true if one buys a bond with higher
credit rating and holds to maturity. Investing in junk bonds (i.e. bond
with credit rating BBB or below) or participating in bond trading can be
very risky.
Return:-
Bond's return mainly consists of 2 components:
 1. Yield-to-Maturity - the average annual rate of return of this bond
investment if the investor holds the bond until maturity.
 2. Coupon - the annual interest one will receive for each year up to
maturity.
However, not all bonds will pay coupon interest. For example, a zero
coupon bond is a special type of bond that does not pay interest but
isredeemed at full face value at the maturity date.

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MONEY MARKET INSTRUMENTS
Definition:-
Money market instrument is a kind of debt security with a maturity of
less than one year in general. Money market securities are mainly issued
by governments, financial institutions and large corporations. They may
take the forms of cash, certificates of deposit, commercial paper and
banker’s acceptance, etc. They are relatively liquid and are considered to
be a very safe investment due to the short duration and the background
of issuer.
Risk:-
The risk level of money market instruments is low as compared with
equities and bonds. Its risk mainly refers to interest rate risk as well as
credit risk. Interest rate risk is about the change in investment value due
to interest rate movement. Credit risk is about the ability of the issuer of
the money market instrument to pay the contractual interest or principal
on a specified date.
Return:-
Return of money market instrument is usually determined by the interest
rate. Because of its low risk and highly liquid nature, money market
instrument offers significantly lower return than most other securities in
the long term.

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OVERVIEW OF MONEY MARKET
Money Market Instruments provide the tools by which one
can operate in the money market.The money market consists of
financial institutions and dealers in money or credit who wish to either
borrow or lend. Participants borrow and lend for short periods of time,
typically up to thirteen months. Money market trades in short-term
financial instruments commonly called "paper." This contrasts with
thecapital market for longer-term funding, which is supplied by bonds
and equity.
The core of the money market consists of interbank lending--banks
borrowing and lending to each other using commercial paper, repurchase
agreements and similar instruments. These instruments are often
benchmarked to (i.e. priced by reference to) the London Interbank
Offered Rate (LIBOR) for the appropriate term and currency.
Finance companies, such as GMAC, typically fund themselves by
issuing large amounts of asset-backed commercial paper (ABCP) which
is secured by the pledge of eligible assets into an ABCP conduit.
Examples of eligible assets include auto loans, credit card receivables,
residential/commercial mortgage loans, mortgage-backed securities and
similar financial assets. Certain large corporations with strong credit
ratings, such as General Electric, issue commercial paper on their own
credit. Other large corporations arrange for banks to issue commercial
paper on their behalf via commercial paper lines.
In the United States, federal, state and local governments all issue paper
to meet funding needs. States and local governments issue municipal
paper, while the US Treasury issues Treasury bills to fund the US public
debt.

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 Trading companies often purchase bankers' acceptances to be
tendered for payment to overseas suppliers.
 Retail and institutional money market funds
 Banks
 Central banks
 Cash management programs
 Merchant Banks

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TYPES OF MONEY MARKET INSTRUMENT
T-Bills:-
T-Bills are short term money market instrument that mature in a year
or less than that. The purchase price is less than the face value at
maturity. The government pays the T-Bill holder the face value. The
T-Bills are marketable, affordable & risk free. The security attached
T-Bill comes at the cost of very low return.
Treasury Bonds:-
Treasury bonds have the longest maturity, from twenty years to
thirty years. They have a coupon payment every six months like T-
Notes, and are commonly issued with maturity of thirty years. The
secondary market is highly liquid, so the yield on the most recent T-
Bond offering was commonly used as a proxy for long-term interest
rates in general. This role has largely been taken over by the 10-year
note, as the size and frequency of long-term bond issues declined
significantly in the 1990s and early 2000s.
The U.S. Federal government suspended issuing the well-known 30-year
Treasury bonds (often called long-bonds) for a four and a half year
period starting October 31, 2001 and concluding February 2006. As the
U.S. government used its budget surpluses to pay down the Federal debt
in the late 1990s. The 10-year Treasury note began to replace the 30-
year Treasury bond as the general, most-followed metric of the U.S.
bond market. However, because of demand from pension funds and
large, long-term institutional investors, along with a need to diversify the
Treasury's liabilities - and also because the flatter yield curve meant that
the opportunity cost of selling long-dated debt had dropped - the 30-year
Treasury bond was re-introduced in February 2006 and is now issued
quarterly. This brought the U.S. in line with Japan and European
governments issuing longer-dated maturities amid growing globally.

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INDUSTRY PROFILE
The mutual fund industry is a lot like the film star of the finance
business. Though it is perhaps the smallest segment of the industry, it is
also the mostglamorous – in that it is a young industry where there are
changes in the rulesof the game every day, and there are constant shifts
and upheavals. The mutual fund is structured around a fairly simple
concept, the mitigationof risk through the spreading of investments
across multiple entities, which isachieved by the pooling of a number of
small investments into a large bucket. Yet it has been the subject of
perhaps the most elaborate and prolonged regulatory effort in the history
of the country.

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INTRODUCTION
MUTUAL FUND
A mutual fund is a type of professionally-managed type
collectiveinvestmentscheme that pools money from many investors.
While there is no legal definition of mutual fund, the term is most
commonly applied only to those collective investment schemes that are
regulated, available to the general public and open-ended in nature.
Hedge funds are not considered a type of mutual fund.
The term mutual fund is less widely used outside of the United States.In
the United States, mutual funds must be registered with the Securities
and Exchange Commission, overseen by a board of directors or board of
trustees and managed by a registered investment advisor. They are not
taxed on their income if they comply with certain requirements.
Mutual funds have both advantages and disadvantages compared to
direct investing in individual securities. They have a long history in the
United States. Today they play an important role in household finances.
There are 3 types of U.S. mutual funds: open-end, unit investment trust
and closed-end. The most common type, the open-end mutual fund, must
be willing to buy back its shares from its investors at the end of every
business day. Exchange-traded funds are open-end funds or unit
investment trusts that trade on an exchange. Open-end funds are most
common, but exchange-traded funds have been gaining in popularity.
Mutual funds are classified by their principal investments. The four
largest categories of funds are money market funds, bond or fixed
income funds, stock or equity funds and hybrid funds. Funds may also
be categorized as index or actively-managed.
Investors in a mutual fund pay the fund’s expenses. There is controversy
about the level of these expenses. A single mutual fund may give
investors a choice of different combinations of expenses by offering
several different types of share classes.

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HISTORY OF THE MFs
A little history:-
The mutual fund industry started in India in a small way with the UTI
Actcreating what was effectively a small savings division within the
RBI. Over aperiod of 25 years this grew fairly successfully and gave
investors a goodreturn, and therefore in 1989, as the next logical step,
public sector banksand financial institutions were allowed to float
mutual funds and their successemboldened the government to allow the
private sector to foray into this area.
The initial years of the industry also saw the emerging years of the Indian equity
market, when a number of mistakes were made and hence the mutualfund schemes,
which invested in lesser-known stocks and at very high levels,became loss leaders
for retail investors. From those days to today the retailinvestor, for whom the
mutual fund is actually intended, has not yet returned to the industry in a big way.
But to be fair, the industry too has focused onbrining in the large investor, so that it
can create a significant base corpus,which can make the retail investor feel more
secure.
The Indian MF industry has Rs 5.67 lakh crore of assets under
management. As per data released by Association of Mutual Funds in India, the
asset base of all mutual fund combined has risen by 7.32% in April, the first month
of the current fiscal. As of now, there are 33 fund houses in the country including
16 joint ventures and 3 wholly owned foreign asset managers.
According to a recent McKinsey report, the total AUM of the Indian mutual
fund industry could grow to $350-440 billion by 2012, expanding 33%
annually. While the revenue and profit (PAT) pools of Indian AMCs are pegged at
$542 million and $220 million respectively, it is at par with fund houses in
developed economies. Operating profits for AMCs in India, as a percentage.

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HISTORY OF MUTUAL FUND:-
The mutual fund industry in India started in 1963 with the formation of Unit Trust
of India, at the initiative of the Government of India and Reserve Bank. The
history of mutual funds in India can be broadly divided into four distinct phases:-
First Phase – 1964-87
An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up
by the Reserve Bank of India and functioned under the Regulatory and
administrative control of the Reserve Bank of India. In 1978 UTI was de-linked
from the RBI and the Industrial Development Bank of India (IDBI) took over the
regulatory and administrative control in place of RBI. The first scheme launched
by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700crores of
assets under management.
Second Phase – 1987-1993 (Entry of Public Sector Funds)
1987 marked the entry of non- UTI, public sector mutual funds set up by public
sector banks and Life Insurance Corporation of India (LIC) and General Insurance
Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund
established in June 1987 followed by Can bank Mutual Fund (Dec 87), Punjab
National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank
of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its
mutual fund in June 1989 while GIC had set up its mutual fund in December
1990. At the end of 1993, the mutual fund industry had assets under management
of Rs.47, 004crores.

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Third Phase – 1993-2003 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund families.
Also, 1993 was the year in which the first Mutual Fund Regulations came into
being, under which all mutual funds, except UTI were to be registered and
governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton)
was the first private sector mutual fund registered in July 1993.
Fourth Phase – since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI
was bifurcated into two separate entities. One is the Specified Undertaking of the
Unit Trust of India with assets under management of Rs.29,835crores as at the end
of January 2003, representing broadly, the assets of US 64 scheme, assured return
and certain other schemes. The Specified Undertaking of Unit Trust of India,
functioning under an administrator and under the rules framed by Government of
India and does not come under the purview of the Mutual Fund Regulations. The
second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is
sbifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000

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ECONOMIC ENVIRONMENT GROWTHOF MUTUAL FUND
INDUSTRYIN INDIA
While the Indian mutual fund industry has grown in size by about 320% from
March, 1993 (Rs. 470 billion) to December, 2004 (Rs. 1505 billion) in terms of
AUM, the AUM of the sector excluding UTI has grown over 8 times from Rs. 152
billion in March 1999 to $ 148 billion as at March 2008. Though India is a minor
player in the global mutual fund industry, its AUM as a proportion of the global
AUM has steadily increased and has doubled over its levels in 1999. The growth
rate of Indian mutual fund industry has been increasing for the last few years. It
was approximately 0.12% in the year of 1999 and it is noticed 0.25% in 2004 in
terms of AUM as percentage of global AUM.
Some facts for the growth of mutual funds in India
 100% growth in the last 6 years.
 Number of foreign AMC’s is in the queue to enter the Indian markets.
 Our saving rate is over 23%, highest in the world. Only channelizing these
savings in mutual funds sector is required.
 We have approximately 29 mutual funds which is much less than US having
more than 800. There is a big scope for expansion.
 Mutual fund can penetrate rural like the Indian insurance industry with
simple and limited products.
 SEBI allowing the MF's to launch commodity mutual funds.
 Emphasis on better corporate governance.
 Trying to curb the late trading practices.

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Recent trends in mutual fund industry
The most important trend in the mutual fund industry is the aggressive
expansion of the foreign owned mutual fund companies and the decline
of the companies floated by the nationalized banks and smaller private
sector players.Many nationalized banks got into the mutual fundbusiness
in the early nineties and got off to a start due to the stock market boom
was prevailing. These banks did not really understand the mutual fund
business and they just viewed it as another kind of banking activity. Few
hired specialized staff and generally chose to transfer staff from the
parent organizations. The performance of most of the schemes floated by
these funds was not good. Some schemes had offered guaranteed returns
and their parent organizations had to bail out these AMCs by paying
large amounts of money as a difference between theguaranteed and
actual returns. The service levels were also very bad. Most of these
AMCs have not been able to retain staff, float new schemes etc.

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ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)
With the increase in mutual fund players in India, a need for mutual fund
association in India was generated to function as a non-profit organization.
Association of Mutual Funds in India (AMFI) was incorporated on 22nd August
1995.
AMFI is an apex body of all Asset Management Companies (AMC), which has
been registered with SEBI. Till date all the AMCs are that have launched mutual
fund schemes are its members. It functions under the supervision and guidelines of
board of directors. AMFI has brought down the Indian Mutual Fund Industry to a
professional and healthy market with ethical lines enhancing and maintaining
standards. It follows the principle of both protecting and promoting the interest of
mutual funds as well as their unit holders.
It has been a forum where mutual funds have been able to present their views,
debate and participate in creating their own regulatory framework. The association
was created originally as a body that would lobby with the regulator to ensure that
the fund viewpoint was heard. Today, it is usually the body that is consulted on
matters long before regulations are framed, and it often initiates many
regulatorychanges that prevent malpractices that emerge from time to time.
AMFI works through a number of committees, some of which are standing
committees to address areas where there is a need for constant vigil and
improvements and other which are adhoc committees constituted to address
specific issues. These committees consist of industry professionals from among the
member mutual funds. There is now some thought that AMFI should become a
self-regulatory organization since it has worked so effectively as an industry body.

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OBJECTIVES:-
To define and maintain high professional and ethical standards in all areas of
operation of mutual fund industry
recommend and promote best business practices and codeof conductto be
followed by members and others engaged in the activities of mutual fund and asset
management including agencies connected or involved in the field of capital
markets and financial services.
interact with the Securities and Exchange Board of India (SEBI) and to
represent to SEBI on all matters concerning the mutual fund industry.
matters relating to the Mutual Fund Industry.
develop a cadre of well trained Agent distributors and to implement a
programme of training and certification for all intermediaries and other engaged in
the industry.
o undertake nationwide investor awareness programme so as to promote proper
understanding of the conceptand working of mutual funds.
o disseminate information on Mutual Fund Industry and to undertake studies
and research directly and/or in association with other bodies.

31
REGULATORY MEASURES BY SEBILike Banking
& Insurance up to the nineties of the last century, Mutual Fund industry in India
was set up and functioned exclusively in the state monopoly represented by the
Unit Trust of India. This monopoly was diluted in the eighties by allowing
nationalized banks and insurance companies (LIC & GIC) to set up their
institutions under the Indian Trusts Act to transact mutual fund business, allowing
the Indian investor the option to choose between different service providers. Unit
Trust was a statutory corporation governed by its own incorporating act. There was
no separate regulatory authority up to the time SEBI was made a statutory
authority in 1992. But it was only in the year 1993, when a government took a
policy decision to deregulate Indian Economy from government control and to
transform it market oriented, that the industry was opened to competition from
private and foreign players. By the year 2000 there came to be established in the
market 34 mutual funds offerings a variety of about 550 schemes.

32
SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL
FUNDS) REGULATIONS, 1996
The fast growing industry is regulated by Securities and Exchange Board of India
(SEBI) since inception of SEBI as a statutory body. SEBI initially formulated
“SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS)
REGULATIONS, 1993” providing detailed procedure for establishment,
registration, constitution, management of trustees, asset management company,
about schemes/products to be designed, about investment of funds collected,
general obligation of MFs, about inspection, audit etc. based on experience gained
and feedback received from the market SEBI revised the guidelines of 1993 and
issued fresh guidelines in 1996 titled “SECURITIES AND EXCHANGE
BOARDOF INDIA (MUTUAL FUNDS) REGULATIONS, 1996”. The said
regulations as amended from time to time are in force even today.

33
REGISTRATION OF MUTUAL FUND
Application for registration:-
1. An application for registration of a mutual fund shall be made to the Board in
Form A by the sponsor.
Application fee to accompany the application:-
2. Every application for registration under regulation 3 shall be accompanied by
nonrefundable application fee as specified in the Second Schedule.
Application to conform to the requirements:-
3. An application which is not complete in all respects shall be liable to be
rejected:
Provided that, before rejecting any such application, the applicant shall be given
an opportunity to complete such formalities within such time as may be specified
by the Board.
Furnishing information:-
4. The Board may require the sponsor to furnish such further information or
clarification as may be required by it.
Eligibility criteria:-
5. For the purpose of grant of a certificate of registration, the applicant has to fulfill
the following, namely:—

34
(a) The sponsorshould have a sound track record and general reputation of fairness
and integrity in all his business transactions.
Explanation: For the purposes of this clause “sound track record” shall mean the
Sponsor should,—
(i) Be carrying on business in financial services for a period of not less than five
Years; and
(ii) The net worth is positive in all the immediately preceding five years; and
(iii) The net worth in the immediately preceding year is more than the capital
Contribution of the sponsor in the asset management company; and
(iv) The sponsor has profits after providing for depreciation, interest and tax in
three out of the immediately preceding five years, including the fifth year;
(b) In the case of an existing mutual fund, such fund is in the form of a trust and
the trust deed has been approved by the Board;
(c) The sponsor has contributed or contributes at least 40% to the net worth of the
asset management company:
Provided that any person who holds 40% or more of the net worth of an asset
Management Company shall be deemed to be a sponsor and will be required to
fulfill the eligibility criteria specified in these regulations;
(d) The sponsor or any of its directors or the principal officer to be employed by
the mutual fund should not have been guilty of fraud or has not been convicted of
an offence involving moral turpitude or has not been found guilty of any
economicOffence;

35
(e) Appointment of trustees to act as trustees for the mutual fund in accordance
with the provisions of the regulations;
(f) Appointment of asset Management Company to manage the mutual fund and
operate the scheme of such funds in accordance with the provisions of these
regulations;
(g) Appointment of a custodian in order to keep custody of the securities 10[or
gold and gold related instrumentsand carry out the custodian activities as may be
authorizedby the trustees.
Consideration of application:-
8. The Board may on receipt of all information decide the application.
Grant of Certificate of Registration:-
9. The Board may register the mutual fund and grant a certificate in Form B on the
applicant paying the registration fee as specified in Second Schedule.
Terms and conditions of registration:-
10. The registration granted to a mutual fund under regulation 9, shall be subject to
the following terms and conditions:
(a) The trustees, the sponsor, the asset management company and the custodian
shall comply with the provisions of these regulations;
(b) The mutual fund shall forthwith inform the Board, if any information or
particulars previously submitted to the Board was misleading or false in any
material respect;

36
(c) The mutual fund shall forthwith inform the Board, of any material change in the
Information or particulars previously furnished, which have a bearing on the
Registration granted by it;
(d) Payment of fees as specified in the regulations and the Second Schedule.
Rejection of application:-
11. Where the sponsor does not satisfy the eligibility criteria mentioned in
regulation 7, the Board may reject the application and inform the applicant of the
same.
Payment of annual service fee:-
12. A mutual fund shall pay before the 15th April each year a service fee as
specified in the Second Schedule for every financial year from the year following
the year of registration:
Provided that the Board may, on being satisfied with the reasons for the delay
permit the mutual fund to pay the service fee at any time before the expiry of two
months from the commencement of the financial year to which such fee relates.

37
CHARACTERISTICSOFMUTUALFUNDS:-
 The ownership is in the hands of the investors who have pooled in their
funds.
 It is managed by a team of investment professionals and other service
providers.
 The pool of funds is invested in a portfolio of marketable investments.
 The investors share is denominated by ‘units’ whose value is called as Net
Asset Value (NAV) which changes every day.
 The investment portfolio is created according to the stated investment
objectives of the fund.

38
ADVANTAGES OF MUTUAL FUNDS:-
The advantages of mutual funds are given below: -
Portfolio Diversification
Mutual funds invest in a number of companies. This diversification reduces the
risk because it happens very rarely that all the stocks decline at the same time and
in the same proportion. So this is the main advantage of mutual funds.
Professional Management
Mutual funds provide the services of experienced and skilled professionals,
assisted by investment research team that analysis the performance and prospects
of companies and select the suitable investments to achieve the objectives of the
scheme.
Low Costs
Mutual funds are a relatively less expensive way to invest as compare to directly
investing in a capital markets because of less amount of brokerage and other fees.
Liquidity
This is the main advantage of mutual fund, that is whenever an investor needs
money he can easily get redemption, which is not possible in most of other options
of investment. In open-ended schemes of mutual fund, the investor gets the money
back at net asset value and on the other hand in close-ended schemes the units can
be sold in a stock exchange at a prevailing market price.

39
Transparency
In mutual fund, investors get full information of the value of their investment, the
proportion of money invested in each class of assets and the fund manager’s
investment strategy
Flexibility
Flexibility is also the main advantage of mutual fund. Through this investors can
systematically invest or withdraw funds according to their needs and convenience
like regular investment plans, regular withdrawal plans, dividend reinvestment
plans etc.
ConvenientAdministration
Investing in a mutual fund reduces paperwork and helps investors to avoid many
problems like bad deliveries, delayed payments and follow up with brokers and
companies. Mutual funds save time and make investing easy.
Affordability
Investors individually may lack sufficient funds to invest in high-grade stocks. A
mutual fund because of its large corpus allows even a small investor to take the
benefit of its investment strategy.
Well Regulated
All mutual funds are registered with SEBI and they function with in the provisions
of strict regulations designed to protect the interest of investors. The operations of
mutual funds are regularly monitored by SEBI.

40
DISADVANTAGES OF MUTUAL FUNDS
Mutual funds have their following drawbacks:
No Guarantees
No investment is risk free. If the entire stock market declines in value, the value of
mutual fund shares will go down as well, no matter how balanced the portfolio.
Investors encounter fewer risks when they invest in mutual funds than when they
buy and sell stocks on their own. However, anyone who invests through mutual
fund runs the risk of losing the money.
Fees and Commissions
All funds charge administrative fees to cover their day to day expenses. Some
funds also charge sales commissions or loads to compensate brokers, financial
consultants, or financial planners. Even if you don’t use a broker or other financial
advisor, you will pay a sales commission if you buy shares in a Load Fund.
Taxes
During a typical year, most actively managed mutual funds sell anywhere from 20
to 70 percent of the securities in their portfolios. If your fund makes a profit on its
sales, you will pay taxes on the income you receive, even you reinvest the money
you made.
Management Risk
When you invest in mutual fund, you depend on fund manager to make the right
decisions regarding the fund’s portfolio. If the manager does not perform as well as
you had hoped, you might not make as much money on your investment as you
expected. Of course, if you invest in index funds, you forego management risk
because these funds do not employ managers.

41
Structure of Mutual Fund:-
SEBI The regulation of mutual funds operating in India falls under the preview of
authority of the “Securities and Exchange Board of India” (SEBI). Any person
proposing to set up a mutual fund in India is required under the SEBI (Mutual
Funds) Regulations, 1996 to be registered with the SEBI
Sponsor
The sponsor should contribute at least 40% to the net worth of the AMC. However,
if any person holds 40% or more of the net worth of an AMC shall be deemed to
be a sponsor and will be required to fulfill the eligibility criteria in the Mutual
Fund Regulations. The sponsor or any of its directors or the principal officer
employed by the mutual fund should not be guilty of fraud or guilty of any
economic offence.

42
Trustees
The mutual fund is required to have an independent Board of Trustees, i.e. two
third of the trustees should be independent persons who are not associated with the
sponsors in any manner. An AMC or any of its officers or employees are not
eligible to act as a trustee of any mutual fund. The trustees are responsible for -
inter alia – ensuring that the AMC has all its systems in place, all key personnel,
auditors, registrar etc. have been appointed prior to the launch of any scheme.
Asset Management Company
The sponsors or the trustees are required to appoint an AMC to manage the assets
of the mutual fund. Under the mutual fund regulations, the applicant must satisfy
certain eligibility criteria in order to qualify to register with SEBI as an AMC.
1. The sponsor must have at least 40% stake in the AMC.
2. The chairman of the AMC is not a trustee of any mutual fund.
3. The AMC should have and must at all times maintain a minimum net worth
of Cr. 100 million.
4. The director of the AMC should be a person having adequate professional
experience.
5. The board of directors of such AMC has at least 50% directors who are not
associate of or associated in any manner with the sponsor or any of its
subsidiaries or the trustees.

43
The Transfer Agents
The transfer agent is contracted by the AMC and is responsible for maintaining the
register of investors / unit holders and every day settlements of purchases and
redemption of units. The role of a transfer agent is to collect data from distributors
relating to daily purchases and redemption of units.
Custodian
The mutual fund is required, under the Mutual Fund Regulations, to appoint a
custodian to carry out the custodial services for the schemes of the fund. Only
institutions with substantial organizational strength, service capability in terms of
computerization and other infrastructure facilities are approved to act as
custodians. The custodian must be totally delinked from the AMC and must be
registered with SEBI.
Unit Holder
They are the parties to whom the mutual fund is sold. They are ultimate beneficiary
of the income earned by the mutual funds.

44
TYPES OF MUTUAL FUND SCHEMES
In India, there are many companies, both public and private that are engaged in the
trading of mutual funds. Wide varieties of Mutual Fund Schemes exist to cater to
the needs such as financial position, risk tolerance and return expectations etc.
Investment can be made either in the debt Securities or equity .
TYPES OF MUTUAL FUND SCHEME
Other SchemesBy structure
By Investment
Objectives
Tax savingfund
EquitySchemesDebtSchemesOpen-ended
Schemes
Large cap fund SectorspecificfundMM Mutual
fund
Close Ended
Schemes
Index SchemesMid cap Fund
FMPInterval Schemes
Small cap fund
Other Debt
Schemes
AnyOther
EquityFund

45
Generally two options are available for every scheme regarding dividend payout
and growth option. By opting for growth option an investor can have the benefit of
long-term growth in the stock market on the other side by opting for the dividend
option an Investor can maintain his liquidity by receiving dividend time to time.
Some time people refer dividend option as dividend fund and growth fund.
Generally decisions regarding declaration of the dividend depend upon the
performance of stock market and performance of the fund.
OPTION REGARDING DIVIDEND
Systematic Investment Plan (SIP)
Systematic investment plan is like Recurring Deposit in which investor
invests in the particular scheme on regular intervals. In the case it is
convenient for salaried class and middle-income group. In this case on
regular interval units of specified amount is created. An investor can
make payment by regular payments by issuing cheques, post dated
cheques, ECS, standing Mandate etc. SIP can be started in the any open-
ended fund if there is provision of it. There are some entry and exit load
barriers for discontinuation and redemption of the fund before the said
period.
GrowthDividend
ReinvestedPayout

46
According to Structure:-
Open – Ended Funds
An open – ended fund is one that is available for subscription all through
the year. These do not have a fixed maturity. Investors can conveniently
buy and sell units at Net Asset Value (NAV) related prices. The key
feature of open – ended schemes is liquidity.
Close – EndedFunds
A close – ended fund has a stipulated maturity period which generally
ranging from 3 to 15 years. The fund is open for subscription only
during a specified period. Investors can invest in the scheme at the same
time of the initial public issue and thereafter they can buy and sell the
units of the scheme on the stock exchanges where they are listed. In
order to provide an exit route to the investors, some close – ended funds
give an option of selling back the units to the mutual fund through
periodic repurchase at NAV related prices.
IntervalFund
Interval funds combine the features of open – ended and close – ended
schemes. They are open for sales or redemption during pre-determined
intervals at their NAV.
According to Investment Objective:
GrowthFunds
The aim of growth funds is to provide capital appreciation over the
medium to long term. Such schemes normally invest a majority of their
corpus in equities. It has been proven that returns from stocks are much
better than the other investments had over the long term.

47
Growth schemes are ideal for investors having a long term outlook
seeking growth over a period of time.
IncomeFunds
The aim of the income funds is to provide regular and steady income to
investors. Such schemes generally invest in fixed income securities such
as bonds, corporate debentures and government securities. Income funds
are ideal for capital stability and regular income.
BalancedFunds
The aim of balanced funds is to provide both growth and regular
income. Such schemes periodically distribute a part of their earning and
invest both in equities and fixed income securities in the proportion
indicated in their offer documents. In a rising stock market, the NAV of
these schemes may not normally keep pace or fall equally when the
market falls. These are ideal for investors looking for a combination of
income and moderate growth.
MoneyMarketFunds
The main aim of money market funds is to provide easy liquidity,
preservation of capital and moderate income. These schemes generally
invest in safe short term instruments such as treasury bills, certificates of
deposit, commercial paper and inter – bank call money. Returns on these
schemes may fluctuate depending upon the interest rates prevailing in
the market. These are ideal for corporate and individual investors as a
means to park their surplus funds for short periods.

48
Other Schemes:
Tax Saving Schemes
These schemes offer tax rebates to the investors under specific
provisions of the Indian Income Tax laws as the government offers tax
incentives for investment in specified avenues. Investments made in
Equity Linked Saving Schemes (ELSS) and Pension Schemes
areallowed as deduction u/s 88 of the Income Tax Act, 1961. The Act
also provides opportunities to investors to save capital gains.
Investments and classification:-
Mutual funds are classified by their principal investments. The four
largest categories of funds are money market funds, bond or fixed
income funds, stock or equity funds and hybrid 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 be inconsistent with a fund's investments. For example,
the "ABC New Jersey Tax-Exempt Bond Fund" would generally have to
invest, under normal circumstances, at least 80% of its assets in bonds
that are exempt from federal income tax, from the alternative minimum
tax and from taxes in the state of New Jersey. Bond, stock and hybrid
funds may be classified as either index (passively-managed) funds or
actively-managed funds.
Money market funds
Money market funds invest in money market instruments, which are
fixed income securities with a very short time to maturity and high credit
quality. Investors often use money market funds as a substitute for bank
savings accounts, though money market funds are not government
insured, unlike bank savings accounts.

49
Money market funds strive to maintain a $1.00 per share net asset value,
meaning that investors earn interest income from the fund but do not
experience capital gains or losses. If a fund fails to maintain that $1.00
per share because its securities have declined in value, it is said to "break
the buck". Only two money market funds have ever broken the buck:
Community Banker's U.S. Government Money Market Fund in 1994
and the Reserve Primary Fund in 2008.At the end of 2010, money
market funds accounted for 24% of the assets in all U.S. mutual funds.
Bond funds
Bond funds invest in fixed income securities. Bond funds can be sub
classified according to the specific types of bonds owned (such as
highyield or junkbonds, investment-grade corporate bonds, government
bonds or municipal bonds) or by the maturity of the bonds held (short-,
intermediate- or long-term). Bond funds may invest in primarily U.S.
securities (domestic or U.S. funds), in both U.S. and foreign securities
(global or world funds), or primarily foreign securities (international
funds).
At the end of 2010, bond funds accounted for 22% of the assets in all
U.S. mutual funds.
Stock or equity funds
Stock or equity funds invest in common stocks. Stock funds may invest
in primarily U.S. securities (domestic or U.S. funds), in both U.S. and
foreign securities (global or world funds), or primarily foreign securities
(international funds). They may focus on a specific industry 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."

50
Market capitalization or market cap indicates the size of the companies a
fund invests in, based on the value of the company's stock. Each
company's market capitalization 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
While the specific definitions of each category vary with market
conditions, large cap stocks generally have market capitalizations of at
least $10 billion, small cap stocks have market capitalizations below $2
billion, and micro cap stocks have market capitalizations below $300
million. Funds are also classified in these categories based on the market
caps of the stocks that it holds.
Stock funds are also sub classified according to their investment style:
growth, value or blend (or core). Growth funds seek to invest in stocks
of fast-growing companies. Value funds seek to invest in stocks that
appear cheaply priced. Blend funds are not biased toward either growth
or value.
At the end of 2010, stock funds accounted for 48% of the assets in all
U.S. mutual funds
Hybrid funds
Hybrid funds invest in both bonds and stocks or in convertible securities.
Balanced funds, asset allocation funds, target date or target risk funds
and lifecycle or lifestyle funds are all types of hybrid funds.
Hybrid funds may be structured as funds of funds, meaning that they
invest by buying shares in other mutual funds that invest in securities.

51
Most fund of funds invest in affiliated funds (meaning mutual funds
managed by the same fund sponsor), although some invest in
unaffiliated funds (meaning those managed by other fund sponsors) or in
a combination of the two.
At the end of 2010, hybrid funds accounted for 6% of the assets in all
U.S. mutual funds.
Expenses
Investors in a mutual fund pay the fund's expenses. These expenses fall
into five categories: distribution charges (sales loads and 12b-1 fees), the
management fee, other fund expenses, shareholder transaction fees and
securities transaction fees. Some of these expenses reduce the value of
an investor's account; others are paid by the fund and reduce net asset
value. Recurring expenses are included in a fund's expense ratio.
Front-end load or sales charge
A front-end load or sales charge is a commission paid to a broker by a
mutual fund when shares are purchased. It is expressed as a percentage
of the total amount invested (including the front-end load), known as the
"public offering price." The front-end load often declines as the amount
invested increases, through breakpoints. Front-end loads are deducted
from an investor's account and reduce the amount invested.
Back-end load
Some funds have a back-end load, which is paid by the investor when
shares are redeemed depending on how long they are held. The back-end
loads may decline the longer the investor holds shares. Back-end loads
with this structure are called contingent deferred sales charges (or
CDSCs). Like front-end loads, back-end loads are deducted from an
investor's account.

52
No-load funds
A no-load fund does not charge a front-end load under any
circumstances does not charge a back-end load under any circumstances
and does not charge a 12b-1 fee greater than 0.25% of fund assets.
Management fee
The management fee is paid to the fund manager or sponsor who
organizes the fund, provides the portfolio management or investment
advisory services and normally lends its brand name to the fund. The
fund manager may also provide other administrative services. The
management fee often has breakpoints, which means that it declines as
assets (in either the specific fund or in the fund family as a whole)
increase. The management fee is paid by the fund and is included in the
expense ratio.
Other fund expenses
A mutual fund pays for other services including:
 Board of directors' (or board of trustees') fees and expenses
 Custody fee: paid to a bank for holding the fund's portfolio in
safekeeping
 Fund accounting fee: for computing the net asset value daily
 Professional services fees: legal and accounting fees
 Registration fees: when making filings with regulatory agencies
 Shareholder communications expenses: printing and mailing
required documents to shareholders
 Transfer agent services fee: keeping shareholder records and
responding to customer inquiries
These expenses are included in the expense ratio.

53
Shareholder transaction fees
Shareholders may be required to pay fees for certain transactions. For
example, a fund may charge a flat fee for maintaining an individual
retirement account for an investor. Some funds charge redemption fees
when an investor sells fund shares shortly after buying them (usually
defined as within 30, 60 or 90 days of purchase); redemption fees are
computed as a percentage of the sale amount. Shareholder transaction
fees are not part of the expense ratio.
Securities transaction fees
A mutual fund pays any expenses related to buying or selling the
securities in its portfolio. These expenses may include brokerage
commissions. Securities transaction fees increase the cost basis of the
investments. They do not flow through the income statement and are not
included in the expense ratio. The amount of securities transaction fees
paid by a fund is normally positively correlated with its trading volume
or "turnover".
Definitions
Net asset value or NAV
Main article: Net asset value
A fund's net asset value or NAV equals the current market value of a
fund's holdings minus the fund's liabilities (sometimes referred to as "net
assets"). It is usually expressed as a per-share amount, computed by
dividing by the number of fund shares outstanding. Funds must compute
their net asset value every day the New York Stock Exchange is open.
Valuing the securities held in a fund's portfolio is often the most difficult
part of calculating net asset value. The fund's board of directors (or
board of trustees) oversees security valuation.

54
Expense ratio
The expense ratio allows investors to compare expenses across funds.
The expense ratio equals the 12b-1 fee plus the management fee plus the
other fund expenses divided by average net assets. The expense ratio is
sometimes referred to as the "total expense ratio" or TER.
Average annual total return
The SEC requires that mutual funds report the average annual
compounded rates of return for 1-year, 5-year and 10-year periods using
the following formula.
P (1+T) n = ERV
Where:
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the 1-, 5-, or 10-year periods at the end of the 1-, 5-,
or 10-year periods (or fractional portion).

56
RESEARCH METHODOLOGY
OBJECTIVES
1.)To study about various financial instrument available in India.
2.)To understand about MFs and its recent development in India.
3.)Tostudy the consumer awareness regarding the MFs.
4.)Tostudy about the investor perception towards MFs in Lucknow.
5.)To study the factors which affect investment in mutual funds.
6.)To studythe customer satisfaction regarding MFs product.

57
SCOPE OF THE STUDY
 Subject matter is related to the investor’s approach towards mutual funds..
 People of age between 20 to 60
 Area limited to lucknow.
 Demographics include names, age, qualification, occupation, marital status
and annual income.

58
STEPS OF RESEARCH DESIGN:
Define the information needed:- This first step states that what the information
that is actually required is. Information in this case we require is that what is the
approach of investors while investing their money in mutual funds and e.g. what do
they consider while deciding as to invest in mutual funds. Also, it studies the
extent to which the investors are aware of the various costs that one bears while
making any investment. So, the information sought and information generated is
only possible after defining the information needed.
Design the research:- A research design is a framework or blueprint for
conducting the research project. It details the proceedstudy uses necessary for
obtaining the information needed to solve research problems. In this project, the
research design is explorative in nature.
Specify the scaling procedures:- Scaling involves creating a continuum on
which measured objects are located. Both nominal and interval scales have been
used for this purpose.
Construct and pretest a questionnaire:-A questionnaire is a formalized set of
questions for obtaining information from respondents. Whereas pretesting refers to
the testing of the questionnaire on a small sample of respondents in order to
identify and eliminate potential problems.

59
Data collection method
Data collection method is both “PRIMARY” & “SECONDARY” as data is
collected through Questionnaire in primary method and huge help of Internet is
taken in secondary method. A well-structured questionnaire was prepared and
personal interviews were conducted to collect the customer’s perception and
buying behavior, through this questionnaire.
Sampling
 Sampling is Convenience as survey is done as per convenience because
questionnaire is filled up by different persons at different places, only one
place or fixed is not taken. Sample size is 125 nos. here.
 Non Probability Sampling Technique:
 Initially, a rough draft was prepared keeping in mind the objective of the
research. A pilot study was done in order to know the accuracy of the
Questionnaire. The final Questionnaire was arrived only after certain
important changes were done. Thus my sampling came out to be judgmental
and consistent.

60
DATA ANALYSIS
AND
INTERPRETATION

61
1). PERCENTAGE OF INCOME INVESTMENT:
PERCENTAGE 0-5 5-10 10-15 MORE
THAN 15
RESPONDENTS 10 60 20 10
INTERPRETATION:
Out of 150 sample size, 50 respondents not responded. 60 investors invest 5-10 %
there in mutual fund , 10 investor invest 0-5 % of their income in mutual fund, 20
investor invest 10-15 % of their income in mutual fund and 10 investor invest more
than 15 % of their income in mutual fund prefers to purchase packed milk while
40% like to purchase fresh milk from milkman.
10
60
20
10
INCOME INVESTMENT
0 TO 5
5 TO 10
10 TO 15
MORE THAN 15

62
2). investment options prefer to invest:
INVESTMEN
T OPTIONS
FIXED
DEPOSI
T
MUTUA
L FUND
POST
OFFICE
DEPOSI
T
SHARE
S
ULI
P
DERIVATIV
ES
RESPONDEN
TS
33 18 15 17 9 8
INTERPRETATION:
Out of 150 sample size, 50 respondents not responded. 33 investors prefer fixed
deposit options for investment, 18 investor prefer mutual fund option for
investment, 15 investor prefer post office option for investment, 17 investor
prefer share option for investment, 9 investor prefer ulip option, and 8 investor
prefer derivatives option for investment depositpost10-15 % of their income in
mutual fund.
33
1815
17
9
8
INVESTMENT OPTION
FIXED DEPOSIT
MUTUAL FUND
POST OFFICE DEPOSIT
SHARES
ULIPE
DERIVATIVES

63
3). Awareness about MFs
Awareness Yes No
Respondents 87 13
INTERPRETATION:
Out of 150 sample size, 50 respondents not responded. 87 investors
aware about mutual funds and 13% not aware about mutual funds.
87
13
0 0
AWARENESSABOUT MFs
YES
NO

64
4). INVESTMENT IN MUTUAL FUNDS:-
INVESTMENT YES NO
RESPONDENT 18 82
INTERPRETATION:
invest their income in mutual funds and 82 investor don’t investment in
mutual funds.
INVESTMENT IN MF
YES
NO

65
5). INVESTMENT PERIOD IN MUTUAL FUND
INVESTMENT
PERIOD
1-5 yrs 5-10 yrs 0-15 yrs
RESPONDENT 32 48 20
INTERPRETATION:
invest their income in mutual funds for the period of 1to 5 years, 48
investor invest their income in mfs for the period of 5 to 10 yrs, and 20
investors invest their income in mfs for the period of 0 to 15 yrs.
32
48
20
0
INVESTMENT PERIOD IN MUTUAL FUND
1-5 yrs
5-10 yrs
0-15 yrs

66
6). various ways come to know about MFs
Various
forms
News
paper
Agents Magazines T.V Hoardings Radio
respondents 35 8 12 22 18 5
INTERPRETATION:
Out of 150 sample size, 50 respondents not responded. 35 people aware
about MFs through news papers , 8 people aware about MFs through
agent, 12 people aware about MFs through magazines, 22 people aware
about though T.V, 18 people aware about MFs through hoardings and 5
people aware about MFs through radio.
35
8
12
22
18
5
formsof knowing about MFs
news paper
agents
magazines
T.V
hoardings
radio

67
7).Rate of investment to grow:-
INTERPRETATION:
Out of 150 sample size, 50 respondents not responded. 10 investor invest
their income at steadily rate of investment, 28 investor invest their
income at an average rate of investment and 62 investor invest their
income at fast rate of investment.
10
28
62
0
rate of investment
steadily
at an avrage
fast
Rate of
investment
Steadily At an average Fast
respondents 10 28 62

68
8). Factor consider before investing in MFs.
INTERPRETATION:
Out of 150 sample size, 50 respondents not responded. 22 investor
concentrate on low risk before investing in MFs, 17 investor concentrate
on safety of principle before investing in MFs, 48 investor concentrate
on safety of principle before investing in MFs, and 13 investor
concentrate on safety of principle before investing in MFs.
22
17
48
13
factor consider bfore investing in MFs
low risk
safty of principle
higher return
maturity period
Factor
consider
before
investing in
MFs
Low risk Safety of
principle
Higher return Maturity
period
Respondents 22 17 48 13

69
9). Do u have any other investment policy
Alternative investment
policy
yes No
respondent 60 40
INTERPRETATION:
Out of 150 sample size, 50 respondents not responded. 60 investor has
other investment policy and 40 investor doesn’t have any other
investment policy.
60
40
0 0
alternative investment policy
yes
no

70
10) Monitor investor investment
Monitor investment Daily Maturity occasionally
respondents 48 32 20
INTERPRETATION:
Out of 150 sample size, 50 respondents not responded. 20 investor
monitoring your investment on occasionally basis,32 investors
monitoring your investment on maturity basis and 48 investors
monitoring your investment on daily basis
48
32
20
0
monitoringinvestment
daily
maturity
0ccasionally

71
FINDINGS
RECOMMANDATIONS
&
CONCLUSION

72
FINDINGS
 Highest number of investors are aware about the MFs.
 Highest number of investors comes from the age group of 25-35.
 Most of the people have been investing their money in the fixed deposits.
 Mostly investors prefer monitoring their investment on daily basis.
 Most of the people invest up to 5-10% of their annual income in mutual
funds.
 Highest number of investors comes to know about the MFs through the
Newspaper.
 Most of the people want their investment to grow in fast speed.
 Most of the people consider before investing in MFs because of higher
return.

73
RECOMMENDATIONS
The performance of the mutual fund depends on the previous year’s Net Asset
Value of the fund. All schemes are doing well. But the future is uncertain. So, the
AMC (Asset under Management Companies) should take the following steps: -
 The people do not want to take risk. The AMC should launch more
diversified funds so that the risk becomes minimum. This will lure more and
more people to invest in mutual funds.
 The expectation of the people from the mutual funds is high. So, the
portfolio of the fund should be prepared taking into consideration the
expectations of the people.
 Try to reduce fund charges, administration charges and other charges which
help to invest more funds in the security market and earn good returns.
 Different campaigns should be launched to educate people regarding mutual
funds.
 Companies should give regular dividends as it depicts profitability.
 Mutual funds should concentrate on differentiating the portfolio of their MF
than their competitors MF
 Companies should give handsome brokerage to brokers so that they get
attracted towards distribution of the funds.

74
CONCLUSION
A mutual fund is the ideal investment vehicle for today’s complex and modern
financial scenario. Markets for equity shares, bonds and other fixes income
instruments, real estate, derivatives and other assets have become mature and
information driven. Today each and every person is fully aware of every kind of
investment proposal. Everybody wants to invest money, which entitled of low risk,
high returns and easy redemption. In my opinion before investing in mutual funds,
one should be fully aware of each and everything.

76
Dear respondents,
I am a student of B.COM. (HONS) at Prafulla Chandra College, Kolkata. As a part
of my project work, I am conducting a survey on “ANALYSIS OF MUTUAL
FUNDS”. I would be thankful, if you could spare your precious time to tick your
response at the appropriate space provided in the questionnaire.
NAME: ………………………………………………
AGE: a.)20-30years b.) 30-40years c.) 40-50years d.) 50 years-above
SEX: a.) Male b.) Female
Ques1.)What percentage of your income do you invest?
(A) 0-5%
(B) 5-10%
(C) 10-15%
(D) More than 15%
Ques2.)What investment options do you prefer to invest?

77
(A)Fixed Deposit
(B)Mutual Fund
(C)Post- Office Deposits
(D)Shares
(E)ULIP
(F)Derivatives
Ques3.)Are you aware about the MFs?
(A)Yes
(B)No
Ques4.)Do you invest in MFs?
(A)Yes
(B)No
Ques5.)How long have you been investing in MFs?
(A)1-5Yr
(B)5-10Yr
(C)0-15Yr 1
Ques6.)From where did you come to know about MFs?
(A)News paper

78
(B)Agents
(C)Magazines
(D)T.V
(E)Hoardings
(F)Radio
Ques7.)At which rate do you want your investment to grow?
(A)Steadily
(B)At an average
(C)Fast
Ques8.)Which factor do you consider before investing in MFs?
(A)Low risk
(B)Safety of principal
(C)Higher return
(D)Maturity period
Ques9.)Do you have any other investment policy?
(A)Yes
(B)No
Ques10.) How often do you monitor your investment?
(A)Daily

79
(B)Maturity
(C)Occasionally
Ques11.)In the past you have invested mostly in?
(A)Saving account
(B)MFs investing in Bond
(C)MFs investing in stocks
(D)Individual Stock and Bond
(E)Balanced MFs
Ques12.)You would describe your financial situation as being?
(A)Very unstable
(B)Somewhat
(C)Moderately stable
(D)Stable
(E)Very stable
Ques13.)If in the future if you ever plan to invest in your money in any
of the MFs Company, which would be your choice?

80
(A)SBI MFs
(B)HDFC MFs
(C)Reliance MFs
(D)ABN AMRO MFs
(E)Other
BIBLIOGRAPHY

81
 www.amfiindia.com
 www.principalindia.com
 www.investorsguide.com
 www.moneycontrol.com
 www.mutualfundsindia.com
 www.sbimf.com
 www.sebi.co.in

82
S.No. S.No. S.No. S.No. Q.1 Q.2 Q.3 Q.4 Q.5 Q.6 Q.7 Q.8 Q.9 Q.10
1 45 M EMPLOYEE C A A A B D C B A A
2 65 F SERVICE B B A A B A B A D A
3 22 M STUDENT B A A A B D B B A B
4 21 M EMPLOYEE B B A A B B B B A B
5 9.5 F KARVY B A B A C C C A A A
6 -2 M ICICI BANK B B A A B D C D A C
7 -13.5 M AXIS BANK B A A B E C C A A A
8 -25 F KARVY B C A B B E B A A B
9 -36.5 M ICICI BANK B B A A B B B C A B
10 -48 M AXIS BANK B D A B C A A B A C
11 -59.5 F KARVY B E A A A A A A A B
12 -71 M ICICI BANK B B A B C E A A A B
13 -82.5 M AXIS BANK B F B B A B A A C B
14 -94 F KARVY B C B B C B A B A
15 -105.5 M ICICI BANK B A A A B D A A A A
16 -117 M AXIS BANK B B A A B A B A A A
17 -128.5 F KARVY B A A A B D B B A B
18 -140 M ICICI BANK B B A A B B B B A B
19 -151.5 M AXIS BANK B A B B C C C A A
20 -163 F KARVY B B A A B D C E A C
21 -174.5 M ICICI BANK C A A A B D C B A A
22 -186 M AXIS BANK B B A A B A B A D A
25 -220.5 M AXIS BANK B A B A C C C A A A
26 -232 F KARVY B B A A B D C D A C
27 -243.5 M ICICI BANK B A A B E C C A A A
28 -255 M AXIS BANK B C A B B E B A A B
29 -266.5 F KARVY B B A A B B B C A B
30 -278 M ICICI BANK B D A B C A A B A C
31 -289.5 M AXIS BANK B E A A A A A A A B
32 -301 F KARVY B B A B C E A A A B
33 -312.5 M ICICI BANK B F B B A B A A C B
34 -324 M AXIS BANK B C B B C B A B A
35 -335.5 F KARVY B A A A B D A A A A
36 -347 M ICICI BANK B B A A B A B A A A
37 -358.5 M AXIS BANK B A A A B D B B A B
38 -370 F KARVY B B A A B B B B A B
39 -381.5 M ICICI BANK B A B B C C C A A
40 -393 M AXIS BANK B B A A B D C E A C
41 -404.5 F KARVY C A A A B D C B A A
42 -416 M ICICI BANK B B A A B A B A D A
45 -450.5 M ICICI BANK B A B A C C C A A A
46 -462 M AXIS BANK B B A A B D C D A C
47 -473.5 F KARVY B A A B E C C A A A
48 -485 M ICICI BANK B C A B B E B A A B
49 -496.5 M AXIS BANK B B A A B B B C A B
50 -508 F KARVY B D A B C A A B A C
51 -519.5 M ICICI BANK B E A A A A A A A B
52 -531 M AXIS BANK B B A B C E A A A B
53 -542.5 F KARVY B F B B A B A A C B
54 -554 M ICICI BANK B C B B C B A B A
55 -565.5 M AXIS BANK B A A A B D A A A A
56 -577 F KARVY B B A A B A B A A A
57 -588.5 M ICICI BANK B A A A B D B B A B
58 -600 M AXIS BANK B B A A B B B B A B
59 -611.5 F KARVY B A B B C C C A A
60 -623 M ICICI BANK B B A A B D C E A C
61 -634.5 M AXIS BANK C A A A B D C B A A
62 -646 F KARVY B B A A B A B A D A
63 -657.5 M ICICI BANK B A A A B D B B A B
64 -669 M AXIS BANK B B A A B B B B A B
65 -680.5 F KARVY B A B A C C C A A A
66 -692 M ICICI BANK B B A A B D C D A C
67 -703.5 M AXIS BANK B A A B E C C A A A
68 -715 F KARVY B C A B B E B A A B
69 -726.5 M ICICI BANK B B A A B B B C A B
70 -738 M AXIS BANK B D A B C A A B A C
71 -749.5 F KARVY B E A A A A A A A B
72 -761 M ICICI BANK B B A B C E A A A B
73 -772.5 M AXIS BANK B F B B A B A A C B
74 -784 F KARVY B C B B C B A B A
75 -795.5 M ICICI BANK B A A A B D A A A A
76 -807 M AXIS BANK B B A A B A B A A A
79 -841.5 M AXIS BANK B A B B C C C A A
80 -853 F KARVY B B A A B D C E A C
81 -864.5 M ICICI BANK C A A A B D C B A A
82 -876 M AXIS BANK B B A A B A B A D A
85 -910.5 M AXIS BANK B A B A C C C A A A
86 -922 F KARVY B B A A B D C D A C
87 -933.5 M ICICI BANK B A A B E C C A A A
88 -945 M AXIS BANK B C A B B E B A A B
89 -956.5 F KARVY B B A A B B B C A B
90 -968 M ICICI BANK B D A B C A A B A C
91 -979.5 M AXIS BANK B E A A A A A A A B
92 -991 F KARVY B B A B C E A A A B
93 -1002.5 M ICICI BANK B F B B A B A A C B
94 -1014 M AXIS BANK B C B B C B A B A
95 -1025.5 F KARVY B A A A B D A A A A
96 -1037 M ICICI BANK B B A A B A B A A A
99 -1071.5 M ICICI BANK B A B B C C C A A
100 -1083 M AXIS BANK B B A A B D C E A C
0 40 0
9
MASTER CHART

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