a study of mutual fund

“A STUDY OF MUTUAL FUND”

UNIVERSITY OF MUMBAI ACADEMIC YEAR 2011 – 2012

LORDS UNIVERSAL COLLEGE

PROJECT ON

A STUDY OF MUTUAL FUND

SUBMITTED BY Mr. VIVEK N. SHAH T. Y. BMS

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DECLARATION
I, Mr. Vivek N. Shah, a student of T. Y. BMS program, semester V of the University of Mumbai of 2011-20112 batch do hereby declare that this report entitled “A STUDY OF MUTUAL FUNDS has been carried out by me during this semester under the guidance of PROFESSOR as per the norms prescribed by the University of Mumbai, and the same work has been not copied from any source directly without acknowledging for the part / section that has been adopted from published / non-published works. I further declare that the information presented in this project is true and original to the best of my knowledge. Dated: Place: Mumbai

Mr. VIVEK N. SHAH

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CERTIFICATE
I,
PROFESSOR

, hereby certify that Mr. VIVEK N. SHAH

studying in the T. Y. BMS, batch 2011-12 at the LORDS UNIVERSAL COLLEGE, has completed the project on “A STUDY OF MUTUAL FUNDS” under my guidance, as per the norms of prescribed by the University of Mumbai, in the academic year 2011-2012. I further certify that the information presented in this project is true and original to the best of my knowledge and belief.
Dated: Place : Mumbai PROf.

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ACKNOWLEDGEMENT

I would like to thank the following, as they have been instrumental in the completion of this project. I would first like to express my gratitude to the Almighty who gifted me the patience, perseverance and enthusiasm, which helped me successfully complete my project. I would like to thank my Guide, whose invaluable support and guidance helped me in every aspect of this project. Finally, I am also indebted to our institute director and my college staff for their constant guidance and all those people and companies who devoted their precious time by responding to my questions and providing me valuable insights based on this topic of my study.

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Table of Contents SR. NO.
SUMMARY 1 CONCEPT OF MUTUAL FUND INVESTOR'S EARN FROM MUTUAL FUND HISTORY OF MUTUAL FUNDS IN INDIA STRUCTURE OF MUTUAL FUNDS ADVANTAGES & DISADVANTAGES OF MUTUAL FUNDS TYPES OF MUTUAL FUNDS ASSOCIATION OF MUTUAL FUNDS IN INDIA FUND MANAGEMENT STYLE & STRUCTURING OF PORTFOLIO INDIVIDUAL SCHEME ANALYSIS 8
A) B) C)

TOPIC

PAGE NO.

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2 3 4 5 6 7

6 9 13 19 31 34

EQUITY LINKED SAVINGS SCHEME DIVERSIFIED EQUITY FUND DEBT FUNDS

49 56 61 69 81 82 83 84

9 10 11 12 13

DO INVESTORS PREFER INVESTING IN MUTUAL FUNDS– SURVEY RECOMMENDATION CONCLUSION & FINDINGS BIBLIOGRAPHY QUESTIONNAIRE

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Summary The one investment vehicle that has truly come of age in India in the past decade is mutual funds. Today, the mutual fund industry in the country manages around Rs 675864 crores (As of June, 2010) of assets, a large part of which comes from retail investors. And this amount is invested not just in equities, but also in the entire gamut of debt instruments. Mutual funds have emerged as a proxy for investing in avenues that are out of reach of most retail investors, particularly government securities and money market instruments. Specialization is the order of the day, be it with regard to a scheme’s investment objective or its targeted investment universe. Given the plethora of options on hand and the hard-sell adopted by mutual funds lying for a piece of your savings, finding the right scheme can sometimes seem a bit daunting. Mind you, it’s not just about going with the fund that gives you the highest returns. It’s also about managing risk–finding funds that suit your risk appetite and investment needs. So, how can you, the retail investor, create wealth for yourself by investing through mutual funds? To answer that, we need to get down to brass tacks–what exactly is a mutual fund? Very simply, a mutual fund is an investment vehicle that pools in the money’s of several investors, and collectively invests this amount in either the equity market or the debt market, or both, depending upon the fund’s objective. This means you can access either the equity or the debt market, or both, without investing directly in equity or debt. India’s is growing at a fast pace. It has become one of the most preferred destinations in the world. Indian markets provide growth opportunities, which are unlikely to be matched by the other mature markets around the world. Project explains some of the major strengths and weakness of the Mutual fund industry.

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Ch. 1- Concept of a Mutual Fund

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:-

Savings form an important part of the economy of any nation. With savings invested in various options available to the people, the money acts as the driver for growth of the country. Indian financial scene too presents multiple avenues to the investors. Though certainly not the best or deepest of markets in the world, it has ignited the growth rate in mutual fund industry to provide reasonable options for an ordinary man to invest his savings.

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Investment goals vary from person to person. While somebody wants security, others might give more weightage to returns alone. Somebody else might want to plan for his child’s education while somebody might be saving for the proverbial rainy day or even life after retirement. With objectives defying any range, it is obvious that the products required will vary as well. Investors earn from a Mutual Fund in three ways: 1. Income is earned from dividends declared by mutual fund schemes from time to time. 2. If the fund sells securities that have increased in price, the fund has a capital gain. This is reflected in the price of each unit. When investors sell these units at prices higher than their purchase price, they stand to make a gain. 3. If fund holdings increase in price but are not sold by the fund manager, the fund's unit price increases. You can then sell your mutual fund units for a profit. This is tantamount to a valuation gain. Though still at a nascent stage, Indian MF industry offers a plethora of schemes and serves broadly all type of investors. The range of products includes equity funds, debt, liquid, gilt and balanced funds. There are also funds meant exclusively for young and old, small and large investors. Moreover, the setup of a legal structure, which has enough teeth to safeguard investors’ interest, ensures that the investors are not cheated out of their hard-earned money. All in all, benefits provided by them cut across the boundaries of investor category and thus create for them, a universal appeal. Investors of all categories could choose to invest on their own in multiple options but opt for mutual funds for the sole reason that all benefits come in a package.

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Ch. 2 .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.6,700 crores of assets under management. Second Phase – 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by 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.

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At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores.

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

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Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

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Ch .3. Structure of Investment Companies (Mutual Funds)

A typical MF in India has the following constituents:

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Sponsor

Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. The sponsor establishes the mutual fund and registers the same with SEBI. Sponsor appoints the Trustees, custodians and the AMC with prior approval of SEBI and in accordance with SEBI Regulations. Sponsor must have a 5-year track record of business interest in the financial markets. Sponsor must have been profit making in at least 3 of the above 5 years. Sponsor must contribute at least 40% of the net worth of the Investment Managed and meet the eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual 13

Funds) Regulations, 1996.The Sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund.

Trust

The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908.

Trustee

Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and inter alia ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the Trustee are independent directors who are not associated with the Sponsor in any manner.

Asset Management Company (AMC)

The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. The AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund. At least 50% of the directors of the AMC are

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independent directors who are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 crore at all times.

Registrar and Transfer Agent

The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form, redemption requests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records. Custodian

A custodian is an agent, bank, trust company, or other organization which holds and safeguards an individual's, mutual funds, or investment company's assets for them.

Ch. 4. Advantages & Disadvantages of Mutual Funds

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1. Professional Management Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. This risk of default by any company that one has chosen to invest in, can be minimized by investing in mutual funds as the fund managers analyze the companies’ financials more minutely than an individual can do as they have the expertise to do so. They can manage the maturity of their portfolio by investing in instruments of varied maturity profiles.

2. Diversification Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.

3. Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient.

4. Return Potential

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Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. Apart from liquidity, these funds have also provided very good post-tax returns on year to year basis. Even historically, we find that some of the debt funds have generated superior returns at relatively low level of risks. On an average debt funds have posted returns over 10 percent over one-year horizon. The best performing funds have given returns of around 14 percent in the last one-year period. In nutshell we can say that these funds have delivered more than what one expects of debt avenues such as post office schemes or bank fixed deposits. Though they are charged with a dividend distribution tax on dividend payout at 12.5 percent (plus a surcharge of 10 percent), the net income received is still tax free in the hands of investor and is generally much more than all other avenues, on a post tax basis.

5. Low Costs Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.

6. Liquidity In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Since there is no penalty on pre-mature withdrawal, as in the cases of fixed deposits, debt funds provide enough liquidity. Moreover, mutual funds are better

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placed to absorb the fluctuations in the prices of the securities as a result of interest rate variation and one can benefits from any such price movement.

7. Transparency Investors get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.

8. Flexibility Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans; you can systematically invest or withdraw funds according to your needs and convenience.

9. Affordability A single person cannot invest in multiple high-priced stocks for the sole reason that his pockets are not likely to be deep enough. This limits him from diversifying his portfolio as well as benefiting from multiple investments. Here again, investing through MF route enables an investor to invest in many good stocks and reap benefits even through a small investment. 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.

10. Choice of Schemes

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Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

11. Well Regulated All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.

12. Tax Benefits Last but not the least, mutual funds offer significant tax advantages. Dividends distributed by them are tax-free in the hands of the investor. They also give you the advantages of capital gains taxation. If you hold units beyond one year, you get the benefits of indexation. Simply put, indexation benefits increase your purchase cost by a certain portion, depending upon the yearly cost-inflation index (which is calculated to account for rising inflation), thereby reducing the gap between your actual purchase costs and selling price. This reduces your tax liability. What’s more, tax-saving schemes and pension schemes give you the added advantage of benefits under Section 88. You can avail of a 20 per cent tax exemption on an investment of up to Rs 100000 in the scheme in a year.

Disadvantages of mutual funds

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Mutual funds are good investment vehicles to navigate the complex and unpredictable world of investments. However, even mutual funds have some inherent drawbacks. Understand these before you commit your money to a mutual fund.

1. No assured returns and no protection of capital If you are planning to go with a mutual fund, this must be your mantra: mutual funds do not offer assured returns and carry risk. For instance, unlike bank deposits, your investment in a mutual fund can fall in value. In addition, mutual funds are not insured or guaranteed by any government body (unlike a bank deposit, where up to Rs 1 lakh per bank is insured by the Deposit and Credit Insurance Corporation, a subsidiary of the Reserve Bank of India). There are strict norms for any fund that assures returns and it is now compulsory for funds to establish that they have resources to back such assurances. This is because most closed-end funds that assured returns in the earlynineties failed to stick to their assurances made at the time of launch, resulting in losses to investors. A scheme cannot make any guarantee of return, without stating the name of the guarantor, and disclosing the net worth of the guarantor. The past performance of the assured return schemes should also be given.

2. Restrictive gains Diversification helps, if risk minimization is your objective. However, the lack of investment focus also means you gain less than if you had invested directly in a single security.

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Assume, Reliance appreciated 50 per cent. A direct investment in the stock would appreciate by 50 per cent. But your investment in the mutual fund, which had invested 10 per cent of its corpus in Reliance, will see only a 5 per cent appreciation.

3. 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 if you reinvest the money you made.

4. Management risk When you invest in a mutual fund, you depend on the fund's 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.

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Ch. 5- Types of mutual fund schemes

A wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.

By structure: a) open-ended schemes b) close-ended schemes c) interval schemes

By investment objective: a) growth schemes b) income schemes c) Balanced schemes d) money market schemes

Other schemes: a) Tax saving schemes b) special schemes c) index schemes d) sector specific schemes

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By Structure

a) Open-ended schemes Open-ended or open mutual funds are much more common than closed-ended funds and meet the true definition of a mutual fund – a financial intermediary that allows a group of investors to pool their money together to meet an investment objective– to make money! An individual or team of professional money managers manage the pooled assets and choose investments, which create the fund’s portfolio. They are established by a fund sponsor, usually a mutual fund company, and valued by the fund company or an outside agent. This means that the fund’s portfolio is valued at "fair market" value, which is the closing market value for listed public securities. An open-ended fund can be freely sold and repurchased by investors.

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Buying and Selling:

Open funds sell and redeem shares at any time directly to shareholders. To make an investment, you purchase a number of shares through a representative, or if you have an account with the investment firm, you can buy online, or send a check. The price you pay per share will be based on the fund’s net asset value as determined by the mutual fund company. Open funds have no time duration, and can be purchased or redeemed at any time, but not on the stock market. An open fund issues and redeems shares on demand, whenever investors put money into the fund or take it out. Since this happens routinely every day, total assets of the fund grow and shrink as money flows in and out daily. The more investors buy a fund, the more shares there will be. There's no limit to the number of shares the fund can issue. Nor is the value of each individual share affected by the number outstanding, because net asset 23

value is determined solely by the change in prices of the stocks or bonds the fund owns, not the size of the fund itself. Some open-ended funds charge an entry load (i.e., a sales charge), usually a percentage of the net asset value, which is deducted from the amount invested.

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Advantages:

Open funds are much more flexible and provide instant liquidity as funds sell shares daily. You will generally get a redemption (sell) request processed promptly, and receive your proceeds by cheque in 3-4 days. A majority of open mutual funds also allow transferring among various funds of the same “family” without charging any fees. Open funds range in risk depending on their investment strategies and objectives, but still provide flexibility and the benefit of diversified investments, allowing your assets to be allocated among many different types of holdings. Diversifying your investment is key, as your assets are not impacted by the fluctuation price of only one stock. If a stock in the fund drops in value, it may not impact your total investment as another holding in the fund may be up. But, if you have all of your assets in that one stock, and it takes a dive, you’re likely to feel a more considerable loss.

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Risks:

Risk depends on the quality and the kind of portfolio you invest in. One unique risk to open funds is that they may be subject to inflows at one time or sudden redemptions, which lead to a spurt or a fall in the portfolio value, thus affecting your returns. Also, some funds invest in

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certain sectors or industries in which the value of the in the portfolio can fluctuate due to various market forces, thus affecting the returns of the fund.

b) Close-ended schemes Close-ended or closed mutual funds are really financial securities that are traded on the stock market. Similar to a company, a closed-ended fund issues a fixed number of shares in an initial public offering, which trade on an exchange. Share prices are determined not by the total net asset value (NAV), but by investor demand. A sponsor, either a mutual fund company or investment dealer, will raise funds through a process commonly known as underwriting to create a fund with specific investment objectives. The fund retains an investment manager to manage the fund assets in the manner specified.

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Buying and Selling:

Unlike standard mutual funds, you cannot simply mail a check and buy closed fund shares at the calculated net asset value price. Shares are purchased in the open market similar to stocks. Information regarding prices and net asset values are listed on stock exchanges; however, liquidity is very poor. The time to buy closed funds is immediately after they are issued. Often the share price drops below the net asset value, thus selling at a discount. A minimum investment of as much as 5000 rs may apply, and unlike the more common open funds discussed below, there is typically a five-year commitment.

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Advantages:

The prospect of buying closed funds at a discount makes them appealing to experienced investors. The discount is the difference between the market price of the closed-end fund and its total net asset value. As the stocks in the fund increase in value, the discount usually decreases and becomes a premium instead. Savvy investors search for closed-end funds with solid returns that are trading at large discounts and then bet that the gap between the discount and the underlying asset value will close. So one advantage to closed-end funds is that one can still enjoy the benefits of professional investment management and a diversified portfolio of high quality stocks with the ability to buy at a discount.

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Risks:

Investing in closed-end funds is more appropriate for seasoned investors. Depending on their investment objective and underlying portfolio, closed-ended funds can be fairly volatile, and their value can fluctuate drastically. Shares can trade at a hefty discount and deprive you from realizing the true value of your shares. Since there is no liquidity, investors must buy a fund with a strong portfolio, when units are trading at a good discount and the stock market is in position to rise.

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

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

Equity funds As explained earlier, such funds invest only in stocks, the riskiest of asset classes. With share prices fluctuating daily, such funds show volatile performance, even losses. However, these funds can yield great capital appreciation as, historically, equities have outperformed all asset classes. At present, there are four types of equity funds available in the market. In the increasing order of risk, these are:

Index funds These funds track a key stock market index, like the BSE (Bombay Stock Exchange) Sensex or the NSE (National Stock Exchange) S&P CNX Nifty. Hence, their portfolio mirrors the index they track, both in terms of composition and the individual stock weightages. For instance, an index fund that tracks the Sensex will invest only in the Sensex stocks. The idea is to replicate the performance of the benchmarked index to near accuracy. Investing through index funds is a passive investment strategy, as a fund’s performance will invariably mimic the index concerned, barring a minor "tracking error". Usually, there’s a 27

difference between the total returns given by a stock index and those given by index funds benchmarked to it. Termed as tracking error, it arises because the index fund charges management fees, marketing expenses and transaction costs (impact cost and brokerage) to its unit holders. So, if the Sensex appreciates 10 per cent during a particular period while an index fund mirroring the Sensex rises 9 per cent, the fund is said to have a tracking error of 1 per cent.

Diversified funds Such funds have the mandate to invest in the entire universe of stocks. Although by definition, such funds are meant to have a diversified portfolio (spread across industries and companies), the stock selection is entirely the prerogative of the fund manager. This discretionary power in the hands of the fund manager can work both ways for an equity fund. On the one hand, astute stock-picking by a fund manager can enable the fund to deliver market-beating returns; on the other hand, if the fund manager’s picks languish, the returns will be far lower.

Tax-saving funds Also known as ELSS or equity-linked savings schemes, these funds offer benefits under Section 80C of the Income-Tax Act. The only drawback to ELSS is that you are locked into the scheme for three years. In terms of investment profile, tax-saving funds are like diversified funds. The one difference is that because of the three year lock-in clause, tax-saving funds get more time to reap the benefits from their stock picks, unlike plain diversified funds, whose portfolios sometimes tend to get dictated by redemption compulsions.

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Sector funds The riskiest among equity funds, sector funds invest only in stocks of a specific industry, say IT or FMCG. A sector fund’s NAV will zoom if the sector performs well; however, if the sector languishes, the scheme’s NAV too will stay depressed. Barring a few defensive, evergreen sectors like FMCG and Pharma, most other industries alternate between periods of strong growth and bouts of slowdowns. The way to make money from sector funds is to catch this cycles–get in when the sector is poised for an upswing and exit before it slips back. Therefore, unless you understand a sector well enough to make such calls, and get them right, avoid sector funds.

b) Income / Debt Oriented Scheme The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations. Such funds attempt to generate a steady income while preserving investors’ capital. Therefore, they invest exclusively in fixed-income instruments securities like bonds, debentures,

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Government of India securities, and money market instruments such as certificates of deposit (CD), commercial paper (CP) and call money. There are basically three types of debt funds.

Income funds By definition, such funds can invest in the entire gamut of debt instruments. Most income funds park a major part of their corpus in corporate bonds and debentures, as the returns there are the higher than those available on government-backed paper. But there is also the risk of default–a company could fail to service its debt obligations.

Gilt funds They invest only in government securities and T-bills–instruments on which repayment of principal and periodic payment of interest is assured by the government. So, unlike income funds, they don’t face the specter of default on their investments. This element of safety is why, in normal market conditions, gilt funds tend to give marginally lower returns than income funds.

Liquid funds They invest in money market instruments (duration of up to one year) such as treasury bills, call money, CPs and CDs. Among debt funds, liquid funds are the least volatile. They are ideal for investors seeking low-risk investment avenues to park their short-term surpluses. The ‘risk’ in debt funds Although debt funds invest in fixed-income instruments, it doesn’t follow that they are risk-free. Sure, debt funds are insulated from the vagaries of the stock market, and so don’t show the same

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degree of volatility in their performance as equity funds. Still, they face some inherent risk, namely credit risk, interest rate risk and liquidity risk.

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Interest rate risk: This is common to all three types of debt funds, and is the prime reason why the NAVs of debt funds don’t show a steady, consistent rise. Interest rate risk arises as a result of the inverse relationship between interest rates and prices of debt securities. Prices of debt securities react to changes in investor perceptions on interest rates in the economy and on the prevalent demand and supply for debt paper. If interest rates rise, prices of existing debt securities fall to realign themselves with the new market yield. This, in turn, brings down the NAV of a debt fund. On the other hand, if interest rates fall, existing debt securities become more precious, and rise in value, in line with the new market yield. This pushes up the NAVs of debt funds.

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Credit risk: This throws light on the quality of debt instruments a fund holds. In the case of debt instruments, safety of principal and timely payment of interest is paramount. There is no credit risk attached with government paper, but that is not the case with debt securities issued by companies. The ability of a company to meet its obligations on the debt securities issued by it is determined by the credit rating given to its debt paper. The higher the credit rating of the instrument, the lower is the chance of the issuer defaulting on the underlying commitments, and vice-versa. A higher-rated debt paper is also normally much more liquid than lower-rated paper. Credit risk is not an issue with gilt funds and liquid funds. Gilt funds invest only in government paper, which are safe. Liquid funds too make a bulk of their investments in avenues that promise a high degree

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of safety. For income funds, however, credit risk is real, as they invest primarily in corporate paper.

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Liquidity risk: This refers to the ease with which a security can be sold in the market. While there is brisk trading in government securities and money market instruments, corporate securities aren’t actively traded. More so, when you go down the rating scale– there is little demand for low-rated debt paper. As with credit risk, gilt funds and liquid risk don’t face any liquidity risk. That’s not the case with income funds, though. An income fund that has a big exposure to low-rated debt instruments could find it difficult to raise money when faced with large redemptions.

c) Balanced Fund The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds. As the name suggests, balanced funds have an exposure to both equity and debt instruments. They invest in a pre-determined proportion in equity and debt–normally 60:40 in favor of equity. On the risk ladder, they fall somewhere between equity and debt funds, depending on the fund’s debt-equity spilt–the higher the equity holding, the higher the risk. Therefore, they are a good

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option for investors who would like greater returns than from pure debt, and are willing to take on a little more risk in the process.

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

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Ch 6. 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 regulatory changes 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 ? To recommend and promote best business practices and code of conduct to be followed by members and others engaged in the activities of mutual fund and asset management including agencies connected or involved in the field of capital markets and financial services. ? To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI on all matters concerning the mutual fund industry. ? To represent to the Government, Reserve Bank of India and other bodies on all matters relating to the Mutual Fund Industry. ? To 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. ? To undertake nationwide investor awareness programme so as to promote proper understanding of the concept and working of mutual funds. ? To disseminate information on Mutual Fund Industry and to undertake studies and research directly and/or in association with other bodies.

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REGULATORY MEASURES BY SEBI

Like 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.

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Ch. 7- Fund Management Style & Structuring of Portfolio

Factors affecting Management style of a scheme

It’s one thing to understand mutual funds and their working; it’s another to ride on this potent investment vehicle to create wealth in tune with your risk profile and investment needs. Here are seven factors that go a long way in helping an AMC meet its investor’s investment objectives. The factors listed below evaluate factors affecting the management style of a mutual fund scheme. • Knowing the profile

Investor’s investments reflect his risk-taking capacity. Equity funds might lure when the market is rising and peers are making money, but if you are not cut out for the risk that accompanies it, don’t bite the bait. So, check if the investor’s objective matches yours. Investors will invest only after they have found their match. If they are racked by uncertainty, they seek expert advice from a qualified financial advisor. • Identifying the investment horizon

How long on an average does the investor want to stay invested in a fund is as important as deciding upon your risk profile. Investors would invest in an equity fund only if they are willing to stay on for at least two years. For income and gilt funds, have a one-year perspective at least. Anything less than one year, the only option among mutual funds is liquid funds.

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•

Declare and Inform

Watch what you commit. Investors look out for the Offer Document and Key Information Memorandum (KIM) before they commit their money to a fund. The offer document contains essential details pertaining to the fund, including the summary information (type of scheme, name of the Asset Management Company and price of units, among other things), investment objectives and investment procedure, financial information and risk factors.

•

The fund fact sheet

Fund fact sheets give investors valuable information of how the fund has performed in the past. It gives investors access to the fund’s portfolio, its diversification levels and its performance in the past. The more fact sheets they examine, the better is their comfort level.

•

Diversification across fund houses

If Investors are routing a substantial sum through mutual funds, they would diversify across fund houses. That way, they spread their risk.

•

Chasing incentives

Some financial intermediaries give upfront incentives, in the form of a percentage of the investor’s initial investment, to invest in a particular fund. Many amateur investors get lured into such incentives and invest in such attractive schemes, which may not meet their future expectations. The ideal investor’s focus would be to find a fund that matches his investment needs and risk profile, and is a performer.

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•

Tracking investments

The investor’s job doesn’t end at the point of making the investment. They do track your investment on a regular basis, be it in an equity, debt or balanced fund. Portfolio management is an important foundation of mutual fund business. The performance of the fund measured by the risk adjusted returns produced by the investor arises largely by successful portfolio management function. After collecting the investors’ funds, effective portfolio management will have to give returns acceptable to the investor; else, the investor may move to better performing funds. From the investors’ perspective, the need for successful portfolio management function is obviously paramount. However, in the complex world of financial markets, portfolio management is a ‘specialist’ function. Now how a fund manager manages the portfolio would depend on the type of the fund he is managing. The funds can be broadly classified as equity funds and debt funds.

Equity Portfolio Management: When the fund contains more than 65% equity, it is called as an equity fund. Thus such type of a fund would need equity portfolio management. An equity portfolio manager’s task consists of two major steps: a) Constructing a portfolio of equity shares or equity linked instruments that is consistent with the investment objective of the fund and b) Managing or constantly re-balancing the portfolio to produce capital appreciation and earnings that would reward the investors with superior returns.

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How To Identify Which Kind Of Stocks To Include? The equity portfolio manager has available to him a whole universe of equity shares and other instruments such as preference shares, warrants or convertible debentures issued by many companies. Even within each category of equity instruments, shares of one company may be very different in terms of their potential than shares of other companies. So how does the fund manager go about choosing the different types of stocks, in order to construct his portfolio? The general answer is that his choice of shares to be included in fund’s portfolio must reflect the investment objective of the fund. More specifically, the equity portfolio manager will choose from a universe of invisible shares in accordance with: a) The nature of the equity instrument, or a stock’s unique characteristics, and b) A certain ‘investment style’ or philosophy in the process of choosing. Thus, you may see a mutual fund’s equity portfolio include shares of diverse companies. However, in reality, the group of stocks selected will have certain unique characteristics, chosen in accordance with the preferred investment style, such that the portfolio as a whole is consistent with the scheme’s objectives. Indian economy is going through a period of both rapid growth and rapid transformation. Thus, the industries with the growth prospects or blue chip shares of yesterday are no longer certain to continue to be in that category tomorrow. “New” sectors like software or technology stocks have matured and newer sectors such as biotechnology are now making an entry in the investment markets. In this process of rapid change, the stock selection task of an active fund manager in India is by no means simple or limited. We will therefore, review how different stocks are classified according to their characteristics.

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Ordinary shares: Ordinary shareholders are the owners if the company and each share entitles the holder to ownership privileges such as dividends declared by the company and voting rights at the meetings. Losses as well as the profits are shared by the equity shareholders. Without any guaranteed income or security, equity share are a risk investment, bringing with them the potential for capital appreciation in return for the additional risk that the investor undertakes.

Preference Shares: Unlike equity shares, preference shares entitle the holder to dividends at the fixed rates subject to availability of profits after tax. If preference shares are cumulative, unpaid dividends for years of inadequate profits are paid in subsequent years. Preference shares do not entitle the holder to ownership privileges such as voting rights at the meetings.

Equity Warrants: These are long term rights that offer holders the right to purchase equity shares in a company at a fixed price (usually higher than the current market price) within specified period. Warrants are in the nature of options on stocks.

Convertible Debentures: As the term suggests, these are fixed rate debt instruments that are converted into specified number of equity shares at the end of the specified period. Clearly, convertible debentures are debt instruments until converted; when converted, they become equity shares.

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EQUITY CLASSES: Equity shares are generally classified on the basis of either the market capitalization or the anticipated movement of company earnings. it is imperative for the fund manager to understand these elements of the stocks before he selects them for inclusion in the portfolio.

Classification in terms of Market Capitalization Market Capitalization is equivalent to the current value of a company, i.e., current market price per share times the number of outstanding shares. There are Large Capitalization Companies, Mid – Cap Companies and Small – Cap Companies. Different schemes of a fund may define their fund objective as a preference for the Large or mid or the Small Cap Companies’ shares. For example, the tax plan of ICICI Prudential AMC is essentially a midcap fund where as the tax plan of Reliance is large-cap fund. Large Cap shares are more liquid and hence easily tradable. Mid or Small Cap shares may be thought of as having greater growth potential. The stock markets generally have different indices available to track these different classes of shares.

Classification in terms of Anticipated Earnings

In terms of anticipated earnings of the companies, shares are generally classified on the basis of their market price relation to one of the following measures:
? Price/Earning Ratio is the price of the share divided by the earnings per share and

indicated what the investors are willing to pay for the company’s earning potential.

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Young and fast growing companies usually have high P/E ratios and the established companies in the mature industries may have lower P/E ratios.
? Dividend Yield for a stock is the ratio of dividend paid per share to the current market

price. In India, at least in the past, investors have indicated the preference for the high dividend paying shares. What matters to the fund managers is the potential dividend yields based on earning prospects.
? Cyclical Stocks are the shares of companies whose earnings are correlated with the

state of the economy.

? Growth Stocks are shares of companies whose earnings are expected to increase at the

rates that exceed the normal market levels.
? Value Stocks are share of companies in mature industries and are expected to yield

low growth in earnings. These companies may, however, have assets whose values have not been recognized by investors in general. Funds manager may try to identify such currently undervalued stocks that in their opinion can yield superior returns later.

Approaches to Portfolio Management (Fund Management Style):

Mutual funds can be broadly classified into two categories in terms of the fund management style i.e. actively managed funds and passively managed funds (popularly referred to as index funds). Actively managed funds are the ones wherein the fund manager uses his skills and expertise to select invest-worthy stocks from across sectors and market segments. The sole intention of

43

actively managed funds is to identify various investment opportunities in the market in order to clock superior returns, and in the process outperform the designated benchmark index. in active fund management two basic fund management styles that are prevalent are:
?)

Growth Investment Style: wherein the primary objective of equity investment is to obtain capital appreciation. This investment style would make the funds manager pick and choose those shares for investment whose earnings are expected to increase at the rates that exceed the normal market levels. They tend to reinvest their earnings and generally have high P/E ratios and low Dividend Yield ratio.

??)

Value Investment Style: wherein the funds manager looks to buy shares of those companies which he believes are currently under valued in the market, but whose worth he estimates will be recognized in the market valuation eventually.

On the contrary, passively managed funds/index funds are aligned to a particular benchmark index like the S&P CNX Nifty or the BSE Sensex. The endeavor of these funds is to mirror the performance of the designated benchmark index, by investing only in the stocks of the index with the corresponding allocation or weightage. Investing in index funds is less cumbersome as compared to investing in actively managed funds. Broadly speaking, investors need to consider two important aspects i.e. the expense ratio and the tracking error (i.e. the difference between the returns clocked by the designated index and index fund). Conversely, investing in actively managed funds demands a deeper review and understanding of the fund house's investment philosophy; also the investor needs to decide on the kind of funds he wishes to invest in - a large cap/mid cap/small cap fund among others.

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Successful Equity Portfolio Management:

Portfolio Management skills are innate in nature and strong intuitive traits from the portfolio manager. Nevertheless, there are certain principles of good equity management that any portfolio manager can follow to improve his performance. • • • Set realistic target returns based on appropriate benchmarks. Be aware of the level of flexibility available while managing the portfolio. Decide on appropriate investment philosophy, i.e., whether to capitalize on economic cycles, or to focus on the growth sectors or finding the value stocks. • Develop an investment strategy based on the investment objective, the time frame for the investment and economic expectations over this period. • Avoid over – diversification. Although diversification is a major strength of mutual funds, the portfolio manager must avoid the temptation to invest into very large number of securities so as to maintain focus and facilitate sound tracking. • Develop a flexible approach to investing. Markets are dynamic and it is impossible to buy ‘stocks for all seasons’

Debt Portfolio Management:

Debt portfolio management has to contend with the construction and management of portfolio of debt instruments, with the primary objective of generating income. Just as the equity fund manager has to identify suitable stocks from a larger universe of equity shares, a debt fund manager has to select from a whole universe of debt securities he wants to invest in.

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Debt schemes of a mutual fund have a short maturity period, generally up to one year. Nevertheless, some schemes regarded as debt schemes do have maturity period a little longer than a year, say, eighteen months. Thus in the context of “debt” mutual funds, depending upon the maturity period of the scheme, the funds managers invest more in “market-traded instruments” or the “debt securities”. The difference in market-traded instruments and debt securities is that the former matures before one year and the later after a year.

Instruments in Indian Debt Market: The objective of a debt fund is to provide investors with a stable income stream. Hence, a debt fund invests mainly in instruments that yield a fixed rate of return and where the principal is secure. The debt market in India offers the following instruments for investment by mutual funds.

Certificate of Deposit: Certificate of Deposits (CD) are issued by scheduled commercial banks excluding regional rural banks. These are unsecured negotiable promissory notes. Bank CDs have a maturity period of 91 days to one year, while those issued by financial institutions have maturities between one and three years.

Commercial Paper: Commercial Paper (CP) is a short term, unsecured instrument issued by corporate bodies (public and private) to meet short term working capital needs. Maturity varies between 3 months and 1 year. This instrument can be issued to the individuals, banks, companies and other corporate

46

bodies registered or incorporated in India. CPs can be issued to NRIs on non – repairable and non – transferable basis.

Corporate Debentures: Debentures are issued by manufacturing companies with physical assets, as secured instruments, in the form of certificates. They are assigned credit rating by the rating agencies. All publicly issued debentures are listed on the exchanges.

Floating Rate Bond (FRB): These are short to medium term interest bearing instruments issued by financial intermediaries and corporations. The typical maturity is of these bonds is 3 to 5 years. FRBs issued by the financial institutions are generally unsecured while those form private corporations are secured.

Government Securities: These are medium to long term interest – bearing obligations issued through the RBI by the Government of India and state governments.

Treasury Bills: T-bills are short term obligations issued through the RBI by the Government of India at a discount. The RBI issues T-bills for tenures: now 91 days and 364 days. These treasury bills are issued through an auction procedure. The yield is determined on the basis of bids tendered and accepted.

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Public Sector Undertakings (PSU) Bonds: PSU are medium and long term obligations issued by public sector companies in which the government share holding is generally greater than 51%. Some PSU Bonds carry tax exemptions. The minimum maturity is 5 years for taxable bonds and 7 years for tax-free bonds. PSU bonds are generally not guaranteed by the government and are in the form of promissory notes transferable by endorsement and delivery.

Credit Selection: Some debt managers look to investing in a bond in anticipation of changes on OTS credit rating. An upgrade of a bond’s credit rating would lend to increase in its price, thereby leading to a superior return. The fund would need to analyze the bond’s credit quality so as to implement this strategy. Usually, debt funds will specify the proportion of assets they will hold in instruments of different credit quality/ratings, and hold these proportions. Active credit selection strategy would imply frequent trading of bonds in anticipation of changes in ratings. While being an active risk management strategy, it does not take away the interest rate, prepayment or credit risks that are faced by any debt fund.

Prepayment Prediction: As noted earlier some bonds allow the issuers the option to call for redemption before maturity. a fund which holds bonds with this provision is exposed to the risk of high yielding bonds being called back before maturity when interest rates decline. The fund manager would therefore strive to hold bonds with low prepayment risk relative to yield spread. Or try to predict the course of the interest rates and decide what the prepayment is likely to be, and then increase or decrease

48

his exposure. In any case, the risks faced by such fund managers are the same as any other. What matters at the end is the yield performance obtained by the fund manager.

Interest Rates and Debt Portfolio Management: No matter which investment strategy is followed by a debt fund manager, debt securities are always exposed to interest rate risk, as their price is directly dependent on them. While they may yield fixed rates of returns, their market values are dependent on interest rate movements, which in turn affect the performance of fund portfolio of which they are a part. Hence, it is essential to understand the factors that affect the interest rates. While this is an intricate subject in itself, we have summarized below some key elements that have a bearing on interest rate movements:

Inflation: simply put, inflation is the percentage by which prices of goods and services in the economy increase over a period of time. This increase may be on account of factors arising within the country – change in production levels, mechanisms for distribution of goods, etc, and/or on account of changes in the country’s external balance of payments position. In India, inflation is generally measured by the Wholesale Price Index although t he Consumer Price Index is also tracked. When the inflation rate rises, money becomes dearer, leading to an increase in the general level of interest rates.

Exchange Rate: a key factor in determining exchange rates between any two currencies is their relative purchasing power. Over a period, the relative purchasing power between two currencies may change based on the performance of the respective economies. The consequent change in exchange rates can affect interest rate levels in the country.

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Policies of the Central Bank: the central bank is the apex authority for regulation of the monetary system in a country. In India, this role is played by the Reserve Bank. The RBI’s policies have a strong bearing on interest rate levels in the economy. If the RBI wishes to curb excess liquidity in a monetary system, it could impose a higher liquidity ratio on banks and institutions. This would restrict credit leading to an increase in interest rates. Similarly, and increase in RBI’s bank rate has the effect of increasing interest rate levels. RBI may also undertake open operations in Treasury Bills and Government securities with the intention of restricting / relaxing liquidity, thereby impacting the interest rates.

Use of Derivatives for Debt Portfolio Management: As explained above, a debt portfolio is always exposed to the interest rate risk. Hence, derivatives contracts can be used to reduce or alter the risk profile of the portfolios containing debt instruments. Interest rate derivatives contracts can be exchange traded or privately traded (on the OTC market). Thus, a portfolio manager can sell interest rate futures or buy interest rate ‘put’ options, usually on an exchange, to protect the value of his debt portfolio. He can also buy or sell forward contracts or swaps bilaterally with other market players on OTC market. In India, interest rate swaps and forward rate agreements were introduced in 1999, though the market for these contracts has not yet fully developed. In 2004, the National Stock Exchange has introduced futures on Interest Rates. Interest rate options are not yet available for trading on exchange.

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Ch. 8. INDIVIDUAL SCHEME ANALYSIS

In this section we will be explaining about the different schemes in mutual funds with examples of different fund houses and comparison.

Section A- Equity Link Savings Scheme

Equity Link Savings Schemes are similar to the normal equity diversified schemes that invest across the board and market segments. Features that differentiate ELSS from an open ended equity diversified scheme are tax saving benefit (deduction under Sec 80C) and a lock in period of three years. The common retort to the oft-asked question by anxious investors, of the best way to save tax, is to invest in Post Office savings schemes, or perhaps a regular investment in a public provident fund, or to buy insurance policies. It is unfortunate that the greatly advantageous Equity Linked Savings Scheme (ELSS) is hardly ever mentioned, which is not a surprise, since, even though it is one of the high yielding products, it remains one of the lesser known ones. That is another reason that investors do not yet comprehend the potential benefits of this product. ELSS holds the advantage of being the only equity-based tax saving instrument available in the country today and offers tax deduction on investments up to Rs 1, 00,000, under Section 80C of the Income-Tax Act. Why investing in ELSS? Tax Benefit: Up to Rs one lakh under Section 80C.

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-

Saves from Short Term Volatility: Lock in of three years. Better Return than that of other savings instruments and similar to other equity schemes.

ICICI Prudential Tax plan –Growth Fund Snapshot: Structure Fund Manager Fund Objective Open Ended Equity Growth fund Sankaran Naren The scheme seeks to generate long term capital appreciation from a portfolio that is invested Indicative Investment Horizon Inception Date Fund Size Face Value (Rs./Unit) NAV (as on 31th August, 2010) Minimum Investment Expense Ratio Benchmark predominantly in equity and equity related securities. 5 yrs. & more 31th Aug, 2010 Rs. 1241.23 Crores Rs. 10 Growth option : Rs. 147.21 Rs. 500 2.22% S&P CNX Nifty

Style Box

Portfolio: As on 31th August 2010 source moneycontrol.com

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Portfolio as on 31.8.2010 ( % to NAV)
4% 2% 2% 3% 5% 6% 7% 7% 8% 10% 11% 11% 11% 13%

Banking/ Finance Pharmaceuticals Technology Engineering Automotive Oil & Gas Utilities Metals & Mining Telecommunication Chemicals Manufacturing Cement & Construction Others Other Current Assets

Portfolio as on 31st August, 2010 (% to NAV) Banking/ Finance Pharmaceuticals Technology Engineering Automotive Oil & Gas Utilities Metals & Mining Telecommunication Chemicals Manufacturing Cement & Construction Others Other Current Assets Total 13.83 11.20 11.17 9.81 8.25 7.26 6.56 6.14 4.83 2.82 2.27 1.66 3.62 10.58 100 Portfolio Characteristics:

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Portfolio as on 31st August, 2010 Average Market Cap(Rs Cr) Market Capitalization Giant Large Mid Small Tiny 1241.23 % of Portfolio 19.94 2.62 35.23 40.95 0.56

:

Reliance Tax Saver Fund – Growth Fund Snapshot Structure Fund Manager Fund Objective Open Ended Equity Growth fund Ashwani Kumar The primary objective of the scheme is to generate long-term capital appreciation from a portfolio that is invested predominantly in equity and equity related Indicative Investment Horizon Inception Date Fund Size Face Value (Rs./Unit) NAV (as on 31th August 10) Minimum Investment Expense Ratio Benchmark instruments. 5 yrs. & more 23rd Aug, 2005 Rs. 2335.91 Crores Rs. 10 Growth option : Rs. 22.91 Rs. 500 1.93% BSE 100

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Style Box:

Portfolio as on 31st August 2010 as under: -

source: - moneycontrol.com
Banking/ Finance Automotive Oil & Gas Pharmaceuticals Engineering Utilities Metals & Mining Cement & Construction Real Estate

Portfolio as on 31.8.2010 (% to NAV)

3% 3% 3% 3% 4% 5%

16%

17%

11%

10% 6% 6% 7%

Food & Beverages Media & Entertainment Telecommunication Information technology Others

6%

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Portfolio as on 31st August 2010 (% to NAV) Banking/ Finance Automotive Oil & Gas Pharmaceuticals Engineering Utilities Metals & Mining Cement & Construction Real Estate Food & Beverages Media & Entertainment Telecommunication Information technology Others Total 16.98 10.89 9.94 6.79 6.37 6.16 6.13 5.21 4.30 3.29 2.95 2.74 2.53 15.72 100

Portfolio Characteristics: Portfolio as on 31st August 2010 Average Market Cap(Rs Cr) Market Capitalization Giant Large Mid 14 days Small 2 Tiny Portfolio P/E Ratio 1 month 7.1 3 months 9.5 1 year 45 3089.47 % of Portfolio 14.58 6.55 36.16 42.71 -25.53 3 yrs 12 Inception* 24.74 Scheme Performance (%) As On 31st AUGUST 2010

Investment Valuation

Stock Portfolio

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Understanding the Portfolio:

Reliance Tax Saver Fund Plan continues to be a high-return high-risk game for investors. It may not go down well with investors who are looking for stability over flashy returns. Its concentration in small and mid cap stocks is a testimony to this fact. Mid caps and small caps occupy humungous space in its portfolio, at 36 and 43 per cent, respectively. Large cap companies have a small presence in its portfolio (6.55 per cent in April, 2010).

The fund is no doubt aggressive but it has been able to justify its strategy through good returns. The fund is not only aggressive in selecting stocks but also churns its portfolio very vociferously.

Basic Engineering sector remains the top holding of the fund followed by Automobile, Technology and Construction. Areva T and D India Ltd is currently its top holding with an over 7.39 per cent allocation (as per April 2009 portfolio). Alstom Projects India Ltd (5.36 per cent), Punjab Tractors Ltd (4.86 per cent) and Tata Consultancy Services Ltd (4.26 per cent) are the other major holdings.

Our View:

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Risk-averse investors may complain about the volatility factor in an equity-linked instrument but the same is taken care of by the mandatory three-year lock-in period. Equities tend to be volatile over the short-term, but the performance tends to get smoothened-out over a longer, three-year time frame. Even the fund manager is not under pressure to take risky, aggressive investment calls to deliver short-term growth, as investors are in the Fund for the long haul. This translates into lower volatility in an ELSS, as compared to that in a diversified equity fund. Moreover, equities outperform other investment avenues like bonds, real estate and gold, over the long term (at least 10 years). Therefore, ELSS offers investors a window to benefit from the 'power' of equities and also claim tax benefits to boot! No doubt NSC and PPF offer investors an assured return, but equities have the potential to offer a higher return vis-à-vis fixed income avenues, as has been established in several studies. Another factor that is often ignored by investors and rarely factored-in while calculating returns is inflation. Inflation dampens returns and pulls down the 'real return on investment'. To put it simply, if your investment offers you a return of 8% p.a. and inflation is at 4%, your real return is (8% minus 4%) 4%, at the end of the first year. Equities are the only investment avenue that can counter inflation effectively and enable investors to post a healthy return, post-inflation.

Our Recommendations Out of the list of ELSS stated in the above we recommend ICICI Prudential Tax Plan, & Reliance Equity Tax Saving Plan All of these schemes have been performing consistently from past five years and have witnessed rough phases of the market. Also, all of them command reasonably good risk-ratios; out of this ICICI Pru Tax Plan is more aggressive than Reliance

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Equity Tax Saving. Therefore, investors can pick any of these schemes according to their risk profile.

Section B - Diversified Equity Funds

Equity fund is one of the oldest and most widely found fund types of mutual fund. Technically, a mutual fund scheme that has more than 65% of its total investments in equities and other equity linked products is regarded as an equity fund. So the schemes like sector schemes, growth schemes, tax saving schemes are primarily equity schemes. Diversified Equity funds diversify their portfolio evenly across stocks and industry sectors. The returns from them tend to be moderately high over a long-term horizon but since the prices of equity shares fluctuate on the stock markets, the net asset value is subject to these fluctuations. These funds suit investors who have moderate risk appetite. In a diversified fund, the risk of down-side is mitigated by the breadth of variety of stocks in the portfolio. Since the portfolio is diversified, the under-performance in some stocks or sectors in which the fund has invested is balanced by the superior performance of other stocks or sectors. Such schemes are designed for the investors who have an investment horizon of at least 3 to 5 years and are also willing to take some risk, though the risk appetite may not be too big. There is a lot of buzz of equity funds since all fund houses have multiple equity funds.

Reliance Equity Advantage Fund:

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Fund Snapshot: Structure Fund Manager Fund Objective Open Ended Equity fund Ashwani Kumar The primary investment objective of the scheme is to achieve long-term growth of capital by investment in equity and equity-related securities through a Indicative Investment Horizon Inception Date Fund Size Face Value (Rs./Unit) NAV (as on 31st August, 2010) Minimum Investment Benchmark Style Box: research-based investment approach. 5 yrs. & more 8th October, 1995 Rs.1320.86 Crores Rs. 10 Rs 14.18 Rs. 5000 BSE 100 Index

Portfolio as on 31st August 2010:

Source: Moneycontrol.com

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Portfolio as on 31.8.2010 (% of Net Assets)
Oil & Gas 16% 4% 4% 5% 6% 7% 9% 13% 18% 18% Banking & Finance Technology Engineering Telecom Automotive FMCG Metals & Mining Utilities Others/ Unlisted

Portfolio as on 31st August 10 Oil & Gas Banking & Finance Technology Engineering Telecom Automotive FMCG Metals & Mining Utilities Others/ Unlisted

% of Net Assets 18% 18% 13% 9% 7% 6% 5% 4% 4% 16%

Understanding the Portfolio: The fund is positioned as a growth fund investing in large cap companies. Technology sector holds the highest investment in the portfolio followed by the automobile and diversified followed by basic / engineering. The top holdings of the fund are Reliance, Larsen & Tubro, HDFC, HDFC BANK, TCS, Maruti Suzuki, SBI, ITC, HCL Tech, ONGC and the list continues.

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Com parison of Fund's Perform ance with SENSEX
70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Las 1 Y t ear Las 3Y t ears Las 5 Y t ears Since Inception R eliance Vision SEN SEX 58.71% 48.38% 46.16% 43.20%

53.08% 43.28%

50.17% 33.72%

Performance Record: The graph above shows the comparison of fund’s performance with SENSEX.

It is clearly seen that the fund has consistently outperformed the SENSEX with a considerable margin ever since its inception. Returns are good since investment is made in the growth shares of the large cap companies.

Our View: The fund is positioned as a growth fund because investment is being made in the growth shares of the large cap companies. As we can see above, returns have been consistent and this trend is expected to continue in coming time too. Growth in returns may also be expected since the fund has sustained rupee appreciation. Now that rupee is expected to stabilize, good returns can be expected from the technology sector, it being the one holding the highest investment. Technology sector is followed by the automobile sector. Automobile sector is also expected to give attractive returns and hence, the returns from this fund would surely be attractive. The fund

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has very less investment in the financial service sector. This is the plus point of the fund since banking sector is expected to under perform, banking sector would only form some part of the investment in the financial service sector. This will help the fund to avoid the burnt of downfall in the banking sector.

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Section C- Debt Funds Across the investing community, most investors turn to liquid funds to park their investible short term funds as they offer superior returns than bank fixed deposits. Liquid fund is a good vehicle to park the funds with almost negligible chance of capital depreciation. The average return that the investors get comes to around 6.5 per cent to 7 per cent. The investors are unwilling to invest in income or gilt funds on account of the risk of capital depreciation in the short term as these funds with their longer average maturity are exposed to the impact of market volatility. In the short run, investors may have to bear capital depreciation in case unfavorable market conditions. Investors who have short term investment needs, instead of going for liquid funds, if they are willing to take little extra risk, can think of investing in short term debt schemes offered by mutual funds, which offer higher returns than the liquid funds. Such schemes are short term gilt funds, Fixed Maturity Plans (FMPs), short term debt plans etc. Fixed-income funds (i.e. debt funds) are likely to provide better risk-adjusted and tax-adjusted returns to an investor over a period of time. Let us understand how fixed income mutual funds work. Fixed-income mutual funds receive money from various investors and they in turn invest in variety of fixed income securities depending on the view on interest rates. Because of their size and reach, they may be in a position to bargain better interest rates on fixed-income securities than retail investors could possibly obtain. If the view on the interest rates is that they are going to come down, the fund may invest in long-dated fixed-income securities to capitalise on possibility of price appreciation as the interest rates decline. It has been observed that due to their presence and continuous monitoring of the fixed income market, fixed-income mutual funds are in the position to offer better risk-adjusted returns.

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Apart from offering attractive returns, fixed-income mutual funds offer liquidity to the investor, which may not be available to retail investor in case if the investor decides to invest on his own. This element of safety combined with liquidity, and attractive risk-adjusted returns may provide the investor with an attractive investment proposition.

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ICICI Prudential Short Term – G: Fund Snapshot: Structure Fund Manager Fund Objective Open Ended Short Term fund (Debt) Chaitanya Pande The scheme aims to generate income through investments debt and money market instruments, Debt Securities up to 100 per cent, Money Market instruments and cash up to 50 per cent, while maintaining low to medium maturity profile of the Indicative Investment Horizon Inception Date Face Value (Rs./Unit) Fund Size NAV (as on 31st August, 2010) Minimum Investment Expense Ratio Benchmark Style Box: portfolio. 5 yrs. & more Oct, 2001 Rs. 10 529.14 Crores Growth option : Rs. 19.52 Rs. 5000 1.10% CRISIL ST Bond

Portfolio: 66

Instrument Break-Up As on 31st August, 2010: Instruments Private Corporate Securities CPs and CDs Government Securities Others Total

Source: - moneycontrol.com % Net Assets 72.05 19.69 2.56 5.70 100

Portfolio Characteristics: Portfolio as on 31st August, 2010 (% to NAV) P1+ Cash & Money Market Unrated AAA AA Total 52.26 26.78 10.32 7.75 2.89 100

Understanding the portfolio:

In this particular fund minimum investment of Rs 5000 and maintain the balance is also of Rs 5000. The fund style of ICICI Prudential is medium – low. Its concentration in P1+ and cash & money market is a testimony to this fact.P1+ and cash & money market occupy humungous space in its portfolio, at 52.26 and 27, respectively. Unrated have a small presence in its portfolio (10.32 per cent).

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As asset allocation, its concentration in Debt fund around 73 per cent and others around 27 per cent. The average maturity period is 0.52 years and Average yield to maturity is around 11 per cent.

Reliance Short Term – G: Fund Snapshot: Structure Fund Manager Fund Objective Open Ended Short Term fund (Debt) Prashant R Pimple The scheme aims to generate stable returns for investors with a short term horizon by investing in fixed income Indicative Investment Horizon Inception Date Face Value (Rs./Unit) Fund Size NAV (as on 31st August, 2010) Minimum Investment Expense Ratio Benchmark Style Box: securities of a short term maturity. 5 yrs. & more Dec, 2002 Rs. 10 : Rs. 4550.33 Growth option : Rs. 17.84 Rs. 50000 0.64% Crisil Liquid

Portfolio:

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Instruments Bonds/NCDs Certificate of Deposit Govt Securities Pass Through Certificate Cash & Net Receivable/Payable Commercial Paper Total

% Net Assets 21.08 47.20 11.82 8.80 6.42 4.09 100

Instrument Break-Up As on 31st August, 2010: Portfolio Characteristics: Portfolio as on 31st August, 2010 (% to NAV) AAA P1+ AA+ A+ Cash & Money Market Total 42.87 28.66 13.25 8.81 6.41 100

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Understanding the Portfolio: In this particular fund minimum investment of Rs 50000 and maintain the balance is nil. The fund style of Reliance Short Term is high – medium. Its concentration in AAA and P1+ is a testimony to this fact. AAA and P1+ occupy humungous space in its portfolio, at 42.87 and 28.66, respectively. AA+ has a small presence in its portfolio (13.25 per cent).

As asset allocation, its concentration in Debt fund around 98 per cent and others around 2 per cent. The average maturity period is 1.13 years and Average yield to maturity is around 8 per cent.

Our View: In the current period, liquid funds and floaters are a better bet than longer duration funds. In the income fund category, the short term plans are very good products offering attractive risk adjusted returns in the current environment. Inflation should be in a band of 5% to 5.5% over the year and would be higher than what the government is projecting. Investors should look at debt fund returns with a one-year investment horizon. Markets are expected to be more volatile in the short term and returns would be more normalized over a one-year period. An uncertain market has given a good opportunity for making new investments. But, what can present investors do in such a scenario? From the above portfolio of three companies, one can clearly see that investments made 2 months before are still giving decent returns. If the uncertainty continues, fund managers would change the duration to minimize any negative impact. But one has to keep in mind that the days of astronomical returns are over. Given the running 6.5-6.75 per cent yield on portfolios, returns would be around 7.5-8 per cent, depending on your holding period. For

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short-term investors, who have an investment horizon of around 3 months and are invested in short term income funds, can liquidate now and park the proceeds in liquid funds, as the riskreward ratio for these short-term investors looks negative. Though negatives in the market will get smoothened in the long run, markets may remain extremely choppy in the short run; it would therefore be prudent to shift your money to liquid funds, adopting a wait-and-watch strategy.

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Ch 9 .ANALYSIS OF MUTUAL FUNDS: Do investors prefer investing in mutual funds? In this section we have done a survey from 50 respondents. This survey is done to know whether people invest in mutual funds or not. Through what mode the investor's prefer to invest in mutual funds which sector do they prefer their Investments? 1) Do you invest in Mutual Funds? Response Frequency Yes = 31 No = 19 Total = 50 Percentage 62% 38% 100

3% 8 ys e n o 6% 2

Interpretation:

62% of the people invest in mutual funds.

2) If not, then what other option(s) do you prefer to invest? Fixed deposits ? post office schemes recurring deposits ??

3) What is the mode of information that you use for Mutual funds? a) Advertisement ??b) Agents ??c) Seminar ??d) Work shops ?

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Options Advertisements Agents Seminar Workshop Total

Frequency 22 12 7 9 50

Percentage 44% 24% 14% 18.00% 100 %

18% 44% 14% 24% adv ertisem ent agents seminar w orkshops

Interpretation: It means that all the modes of information are not the same. Advertisement is more popular. 4) In which sector do you prefer to invest your money?

Options Government sector Private sector Total

Frequency 27 23 50

Percentage 54 % 46 % 100 %

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fre u n y qec

4% 6 5% 4

g v rn e t s c r o e m n e to p a sc r riv te e to

Interpretation: People prefer both the sectors equally 5) At which rate do you want your investment to grow?

Options Steadily At an average rate Fast Total

Frequency 17 13 20 50

Percentage 34 % 26 % 40 % 100 %

frequency

40%

34%

steadily at an av erage rate fast

26%

Interpretation: 40% of the respondents want their investments to Grow Fast.

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6) Which factor do you consider before investing in mutual fund?

Options Safety of principal Low risk Higher returns Maturity period Terms and conditions Total

frequency 14 15 14 4 3 50

Percentages 28 % 30 % 28 % 8% 6% 100 %
fre u n q e cy

8 %

6 %

2% 8

sa ty o p cip l fe f rin a lo risk w h hre rn ig tu s

2% 8 3% 0

m tu p rio a rity e d te s a d co d n rm n n itio s

Interpretation: People prefer low risk as the most important factor before investing in mutual funds 7) Do you invest your money in Share market? Yes Options Yes frequency 35 No Percentages 70 %

75

No Total

15 50

30 % 100 %

8) Imagine that stock market drops immediately after you invest in it then what will you do?

Options Withdraw your money Wait and watch Invest more in it Total
frequency

Frequency 8 26 16 50

Percentages 16 % 52 % 32 % 100 %

32%

16% withdraw your money wait and watch invest more in it 52%

Interpretation: 26% of the respondents will wait and watch even if the share market drops.
9) Do you have any other investment?

Options Yes

frequency 34

Percentages 68 %

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No Total
fre u n q e cy

16 50

32 % 100 %

3% 2 Ys e N o 6% 8

Interpretation: 68 % of the people had bought other investment policies.
10) How often do you monitor your investment?

Options Daily Monthly Occasionally Total

frequency 15 25 10 50

Percentage 30 % 50 % 20 % 100 %

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fre u n q e cy

2% 0

3% 0 d ily a m n ly o th o sio a cca n lly 5% 0

Interpretation: It shows that most of the people .i.e. 50% prefer monitoring their investment on monthly basis. 20% of the people monitor their investment occasionally. 11) What percentage of your income do you invest? Options 0- 5% 5-10% 10-15% Total Frequency 26 13 11 50 Percentage 52 % 26 % 22 % 100 %

frequency

22% upto 5% 52% 26% 5-10% 10% % above

Interpretation: People invest around 6% of their income.

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12) How long have you been investing in mutual funds?

Options 1-5 years 5-10 years 10-15 years Total

Frequency 22 17 11 50

Percentages 44 % 34 % 12 % 100 %

fre u n y qec

2% 2 4% 4 1 ya -5 e rs 5 0y a -1 e rs 1 -1 y as 0 5 er 3% 4

Interpretation: This shows that people normally tend to invest for longer term. There’s not much of a difference between the various time periods. 13) In the past, you have invested mostly in (choose one):

Options
Savings A/cs & PO schemes Mutual funds investing in bonds Mutual funds investing in stocks Balanced mutual funds Individual stocks & bonds Ulips Other instruments like real estate, gold

frequency 18 6 3 1 5 4 13 50

Percentages 36 % 12 % 6% 2% 10 % 8% 26 % 100 %
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Total

fe u n y r qec

S v g A s& a in s /c P s h ms O ce e M tu l f n s u a ud in e tin inb n s vs g od M tu l f n s u a ud in e tin ins c s vs g to k B la c dm tu l a ne u a fu d ns In iv u l s c s & d id a to k bns od U s lip

1% 8 6 % 5% 0 3 % 1 % 5 % 4 % 1% 3

O e in tru e ts th r s m n lik re l e ta , e a s te g ld o

Interpretation: In the past maximum percentage of the respondents i.e. 36% of the respondents have invested in Savings A/c’s & PO schemes. 14) You would describe your financial situation as being: ??Very unstable. ??Moderately stable. ??Very stable Options Very unstable Frequency 11 Percentages 22 % ??Somewhat unstable. ??Stable.

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Somewhat unstable Moderately stable Stable Very stable Total

12 9 10 8 50

24 % 18 % 20 % 16 % 100 %

Interpretation: The financial situation is moderately stable.

15) Your comfort level in making investment decisions can best be described as: Options Low Moderate High Total frequency 20 18 12 50 Percentages 40 36 24 100

frequency

27%

32% Low M oderate high 41%

Interpretation: 41% of the respondents are moderately comfortable in making investment decisions. Options Sbi mutual fund HDFC mutual fund Reliance mutual fund Others Total Frequency 7 8 14 21 50 Percentages 14 16 28 42 100 81 16) If in the near

future if you ever plan to invest in your money in any of the mutual fund company, which would be your choice?

frequency

20%

14% 16%

Sbi mutual fund HDFC mutual fund Reliance mutual fund ABN AMRO mutual fund

22% 28%

others

Interpretation: People mostly prefer all the brands equally for their future investments.

DEMOGRAPHICS 58% of people belong to 25-35 age groups and on the other hand only 42% of people belong to above 40 age group. 17% of the people are under graduate.

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52% of the people are graduates, and 31% of the people are post graduates. 55% of the people are married 45% of the people are unmarried. 31% of the people are having their own business. 31% of the people are salaried. 25% are professionals. 8% are housewives. 5% are retired. 24% of the people belong to below 1,50,000 income group. 36% of the people belong to1,50,000 – 2,50,000 income group. 33% of the people belong to 2,50,000 – 4,00,000 income group. Only 7% of the people belong to above 4,00,000 income group.

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RECOMMENDATIONS The performance of the mutual fund depends on the previous years 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: 1. Try to reduce fund charges, administration charges and other charges which help to invest more funds in the security market and earn good returns. 2. Different campaigns should be launched to educate people regarding mutual funds. 3. Companies should give regular dividends as it depicts profitability. 4. Mutual funds should concentrate on differentiating the portfolio of their MF than their competitors MF. 5. Companies should give handsome brokerage to brokers so that they get attracted towards distribution of the funds.

Recently SEBI has passed a rule stating that the entry load of 2-2.25% which is charged while investing in mutual funds is waived off by the AMC’s in India Hence investing in mutual funds has become cheaper for investor’s in India.

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CONCLUSION

A mutual fund is the ideal investment vehicle for today’s complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Today each and every person should be 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.

FINDINGS. • • • • • Highest number of investors comes from the salaried class. Highest number of investors comes from the age group of 25-35. Most of the people have been investing their money in the stock markets belong to Rs.400000 and above income group. Mostly investors prefer monitoring their investment on monthly basis. Most of the people invest up to 6% of their annual income in mutual funds.

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BIBLIOGRAPHY • • • • • • • • )1 )2 www.amfiindia.com www.principalindia.com www.investorsguide.com www.moneycontrol.com www.mutualfundsindia.com www.sbimf.com www.sebi.co.in Fund Houses Booklets Reliance Mutual Fund booklet Dsp Merrill lynch fund booklet

•

Amfi Handbook

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ANNEXURE. QUESTIONNAIRE I am Vivek Shah pursuing T.Y.BMS from Lords Universal College, Mumbai. As a part of the curriculum I am doing research on “ A Study of Mutual Funds In India: - As an vehicle for Investment”. Kindly help me in the same by filling the Questionnaire. Your response would be kept strictly confidential and would be used for academic research.

1) Do you invest in Mutual Funds? a) Yes

b)?? No.

2) If not, then what other option(s) do you prefer to invest? a) Fixed deposits b) post office schemes c) Recurring deposits?

If others, please specify.________________________ 3) How do you get the information of the various Mutual Funds Co.’s? a) Advertisement b) Agents ??c) Seminar ??d) Workshops

4) In which sector do you prefer to invest your money? a) Private Sector b) Government Sector

5) At which rate do you want your investment to grow? a) Steadily b) At an average rate c) Fast

6) Which factor do you consider before investing in mutual fund? a) Safety of principal conditions b) Low risk c) High returns d) Maturity period e) Terms and

7) Do you invest your money in share market? Yes No

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8) Imagine that stock market drops immediately after you invest in it then what will you do? a) Withdraw your money b) Wait and watch c) Invest more in it

9) Do you have any other investment/insurance policy? Yes 10) a) Daily 11) a) 0-5% 12) How often do you monitor your investment? b) Monthly c) Occasionally

No

What percentage of your income do you invest? b) 5-10% c)10-15%

How long have you been investing in mutual funds? c) For the last 10 – 15 years

a) For the last 1-5 years b) For the last 5-10 years 13)

In the past, you have invested mostly in (choose one):

a) Savings A/c’s & PO schemes b) Mutual funds investing in bonds c) Mutual funds investing in stocks d) Balanced mutual funds e) Individual stocks & bonds f) Ulips g) Other instruments like real estate, gold 14) You would describe your financial situation as being: a) Very unstable b) Somewhat unstable c) Moderately stable d) Stable 15) a) Low

e) Very stable

Your comfort level in making investment decisions can best be described as? b) Moderate c) High

16) If in the near future if you ever plan to invest in your money in any of the mutual fund company, which would be your choice? a) SBI mutual fund PERSONAL DETAILS Name: ……………………………………………………………… b) HDFC mutual fund c) Reliance mutual fund d) Others

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Age Group: 1) Below 20 Above 40

2) Between 20-30

3) Between 30-40

4)

Qualification: a) Under graduate Other:_______________

b) Graduate

c) Post graduate

d)

Occupation: 1) Salaried 2) Business 3) Housewife 4) Professional _________ Marital Status: a) Single b) Married

5) Retired

6) Other:

Annual income: 1) Below Rs 1,50,000 4,00,000 4) Above 400000

2) Rs 1,50,000- Rs2,50,000

3) Rs 2,50,000-Rs

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