Description
To Know about the operation and performance of mutual fund in Delhi
A SUMMER TRAINING REPORT ON
“Investor’s Perception towards Mutual Fund Investment in Delhi”
Submitted By: Abdul Qudoos Master of Business Administration 2011-2013
Millennium Academy Of Professional Studies
Organization
IFCI Financial Services Ltd Janakpuri New Delhi
Project Guide
Mr.Mohammad Rizwan Ahmed Branch Head Janakpuri
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A SUMMER TRAINING REPORT ON
“Investor’s Perception towards Mutual Fund Investment in Delhi”
BY: Abdul Qudoos Under the Esteemed Guidance of Mr.Mohammad Rizwan Ahmed BRANCH HEAD JANAKPURI IFCI FINANCIAL SERVICES Ltd.
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ACKNOWLEDGEMENT
With immense pleasure I would like to present this report on “Investor’s Perception towards Mutual Fund Investment in Delhi”.
I express my sincere gratitude to Mr.Mohammad Rizwan Ahmed for guiding me throughout the project. He helped in guiding me for all the difficulties I faced. He helped me in giving the adequate knowledge regarding the various products and knowledge about the stock market. Acknowledgement is due to my parents, family members, friends who have helped me directly or indirectly in the successful completion of the project.
I am also thankful to my faculty guide Mr. Amit Agarwal and all my faculties for being with me and helping me in all the problems I faced. They explained how and what steps I would take to perform my project effectively.
Signature
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TABLE OF CONTENTS
? Acknowledgement ? Executive Summary ? Research Objective 3 5
7
Chapter 1:
Company Profile
? About IFCI Financial Services Ltd. ? SWOT Analysis 9
19
Chapter 2:
Introduction of Mutual funds
? Mutual Fund’s concept and its operation ? History of Mutual Funds ? Characteristics of Mutual Funds 21 23
31
Chapter 3:
41
Literature Review Research Methodology
? Research Problem ? Objectives of the Research ? Research Design 46 ? Sampling 45 46
Chapter 4:
49
51
Chapter 5: Chapter 6:
Data Analysis & Interpretation Findings, Conclusions,
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Suggestions & Recommendations
81
Appendix:
90
References, Bibliography
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EXECUTIVE SUMMARY In few years mutual fund has emerged as a tool for ensuring one’s financial wellbeing. Mutual funds have not only contributed to the Indian growth story but have also helped families tap into the success of Indian Industry. As information and awareness is rising more and more people are enjoying the benefits of investing in mutual funds. The main reason the number of retail mutual fund investors remains small is that people with incomes in India do not know that mutual funds exist. But once people are aware of mutual fund investment opportunities, the number who decide to invest in mutual funds increases to as one in five people. The trick for converting a person with no knowledge of mutual fund to a new mutual fund customer is to understand which of the potential investors are more likely to buy mutual funds and to use the right arguments in the sales process that customers will accept as important and relevant to their decision. This project gave me a great learning experience and at the same time it gave me enough scope to implement my analytical ability. The analysis and advice presented in this project report is based on market research on perception of investors towards investment in mutual funds. This report will help to know about the investor’s preferences in mutual fund means. Are they prefer any particular Asset Management Company (AMC), which investment strategy they follow systematic investment plan or one time plan, (SIP). This project as a whole can be divided into two part. The first part gives an insight about Mutual Fund and its various aspects, the company profile, objectives of research, Research Methodology. One can have a brief knowledge about mutual fund and its basics through the project. The second part of the project consists of data and its analysis collected through survey done on 120 people. For the collection of primary data I made a questionnaire and survey of 00 people. I visited other AMCs in Delhi to get some knowledge related to my topic. I studied about the products and strategies of other AMCs. This project covers the topic “Investor’s Perception towards Mutual Fund investment in Delhi” The project is beneficial for AMCs for generating information regarding the perception and attitude of mutual fund investors while they choose to invest by the help of a particular asset management company.
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OBJECTIVE OF THE RESEARCH The objectives of carrying out the research are: • • •
To find out the investors’ perception towards mutual funds and its performance To find out the Preferences of the investors for different asset management companies To know the Preferences for the portfolios
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CHAPTER -1 COMPANY PROFILE
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COMPANY PROFILE History
IFCI Financial Services Ltd (IFIN) was promoted in 1995, by IFCI Ltd., to provide a wide range of financial products and services to investors, institutional and retail. IFIN is primarily involved in Stock Broking, Investment Banking, Mutual Fund Distribution & Advisory Services, Depository Participant Services, Insurance Products Distribution and the like. IFIN is positioned as a global financial supermarket, built on the foundations of incisive research and trust. Intense interaction with investors helps us understand their specific needs and suggest holistic and appropriate financial solutions. Our team of professionals continuously scans the financial arena and stay ever prepared to educate investors and partner them in creating enduring wealth. IFCI Limited, Our Legendary Parent Institution The Government of India established The Industrial Finance Corporation of India (IFCI) on July 1, 1948, as India’s first and premier Development Financial Institution, to cater to the long – term financial needs of the industrial sector. By the early 1990s, with the need for greater flexibility to respond to the changing financial system, IFCI was mandated to directly access the capital markets for its fund needs. Therefore, the constitution of IFCI was changed in 1993 from a statutory Corporation to a Company under the Indian Companies Act, 1956. The name of the Company itself was changed to “IFCI Limited” with effect from October 1999. IFCI has achieved a financial turnaround with the consistent support and cooperation of all its stakeholders and is now endeavoring to re-position itself. In addition to its core competence in long-term lending to industrial and infrastructure sectors.
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Vision
“To emerge as the most trusted partner for upcoming enterprises in the
country, thereby contributing to the growth of the economy and in the process, optimizing returns on investment”
Mission
“To become the leading institutional player in VC industry of the country”
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BUSINESS OF THE COMPANY
IFCI Financial Services Limited deals in the Stock Market, Commodities Market, Agriculture Market, Merchant Banking, Investment Banking, Third party distributions (Mutual Fund, Insurance & SIP) & Portfolio Management. Stock Market:A stock market or equity market is a public entity for the trading of
company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.
Commodities Market:- Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts.
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Merchant Banking: - A merchant bank is a financial institution which provides capital to companies in the form of share ownership instead of loans. A merchant bank also provides advisory on corporate matters to the firms they lend to.
Investment Banking:- An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities. An investment bank may also assist companies involved in mergers and acquisitions, and provide ancillary services such as market making, trading of derivatives, fixed income instruments, foreign exchange, commodities, and equity securities
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Third Party Distributions (Mutual Fund):-It is a professionally managed investment scheme that pools money from many investors typically and invests in different investment securities.
Insurance:- It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount to be charged for a certain amount of insurance coverage is called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.
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Portfolio Management: It is an Investment management where the various securities (shares, bonds and other securities) are managed professionally and assets (e.g., real estate) in order to meet specified investment goals for the benefit of the investors. Investors may be institutions commonly funds). (insurance companies, pension funds, corporations, charities, educational establishments etc.) or private investors (both directly via investment contracts and more via collective investment schemes e.g. mutual funds or exchange-traded
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MEMBERSHIP AND REGISTRATIONS
? The National Stock Exchange of India Limited IFIN is a premier broking house and is currently a member of NSE in all the segments - Cash Market (NSE) (CM), Futures & Options (F&O), Whole Sale Debt Market (WDM) and Currency Derivatives. It caters to many prestigious institutional clients in the insurance, mutual funds and banking segments as well as Retail Individual and HNI segments.
? The Bombay Stock Exchange of India Limited (BSE)
IFIN is a member of one of the oldest stock exchanges in India, namely the BSE, in the Cash Market (CM) segment.
? MCX Stock Exchange Ltd (MCX-SX)
IFCI Financial Services is a member of MCX-SX for offering Currency Trading facility.
? National Spot Exchange Limited (NSEL) ? Depository Participant
Commodities Trading membership through IFIN Commodities Ltd As a Depository Participant with the National Security Depository Limited (NSDL) and Central Depository Participant Limited (CDSL), IFIN serves its clients in a wholesome fashion. Registered with the Association of Mutual Funds in India (AMFI) as a distributor of Mutual Fund products, IFIN has been highly active and very successful in the distribution of various mutual fund products IFIN is an IRDA approved Corporate Agent (CA) for both Life and Non-life Insurance sectors. It is empanelled with LIC for Life Insurance and Bajaj Allianz for the Non-Life Insurance sector. As a SEBI registered Portfolio Manager, we offer Discretionary Portfolio Management Services backed by Equity Research - Fundamental and Technical.
? Mutual Funds Distribution
? Insurance Corporate Agent
? Portfolio Management Services
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SWOT ANALYSIS OF THE COMPANY ON MY PERSONAL EXPERIENCES, LEARNING & OBSERVATIONS AS AN INTERN.
• • • • • • •
STRENGTHS All three accounts Demit, Trading & Savings A/C s are interrelated Research based analysis by excellent analyst at Chennai Corporate Office. More than 90% calls & tips are true. Less brokerage as per trading capacity of clients. More than 15 years’ experience employees Got license to enter in Banking Sector also. Semi-Government organization
• • • • •
WEAKNESS Very few branches all over India. No sales department for marketing & sales of their products & services. No advertisement in terms of banner, print media & TV ad also. Not involved in banking sector yet. Less extension limit as per the trading capacity of clients in comparison of their competitors.
• • •
OPPORTUNITIES Can go for market penetration through different-different products. Market share is increasing year by year. Ready to get in Banking Sector also. It will increase market share more rapidly than earlier.
•
THREATS Already existing competitors. For e.g. Religare, SMC, Share Khan & Motilal Oswal Securities.
•
Other main competitors who are already in banking sector also. For e.g ICICI Securities, Kotak Mahindra Securities & Standard Chartered Securities.
•
Increasing nationwide presence • Other competitors are sub broker & BDR of Brokerage House.
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Chapter – 2 Introduction
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INTRODUCTION TO MUTUAL FUND AND ITS VARIOUS ASPECTS
Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. This pool of money is invested in accordance with a stated objective. The joint ownership of the fund is thus “Mutual”, i.e. the fund belongs to all investors. 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 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. A Mutual Fund is an investment tool that allows small investors access to a well-diversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are issued and can be redeemed as needed. The fund’s Net Asset value (NAV) is determined each day. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders. When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit holder. Any change in the value of the investments made into capital market instruments (such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the market value of scheme's assets by the total number of units issued to the investors.
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HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY
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. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the Industry. In the past decade, Indian mutual fund industry had seen a dramatic improvement, both qualities wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the Assets under Management (AUM) was Rs67 billion. The private sector entry to the fund family raised the Aum to Rs. 470 billion in March 1993 and till April 2004; it reached the height if Rs. 1540 billion. The Mutual Fund Industry is obviously growing at a tremendous space with the mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under. First Phase – 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management. Second Phase – 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores.
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Third Phase – 1993-2003 (Entry of Private Sector Funds) 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. 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 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. 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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INVESTMENT ALTERNATIVES IN INDIA
•
Non Marketable Financial Assets: These are such financial assets which gives moderately high return but cannot be traded in market. ? ? ? ? Bank Deposits Post Office Schemes Company FDs PPF
•
Equity Shares: These are shares of company and can be traded in secondary market. Investors get benefit by change in price of share and dividend given by companies. Equity shares represent ownership capital. As an equity shareholder, a person has an ownership stake in the company. This essentially means that the person has a residual interest in income and wealth of the company. These can be classified into following broad categories as per stock market: ? ? ? ? ? Blue chip shares Growth shares Income shares Cyclic shares Speculative shares
•
Bonds: Bonds are the instruments that are considered as a relatively safer investment avenues.
?
G- sec bonds GOI relief funds Govt. agency funds PSU Bonds RBI BOND Debenture of private sector co.
22
? ? ? ? ?
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Money Market Instrument: By convention, the term "money market" refers to the market for short-term requirement and deployment of funds. Money market instruments are those instruments, which have a maturity period of less than one year. ? ? ? T-Bills Certificate of Deposit Commercial Paper
•
Mutual Funds- A mutual fund is a trust that pools together the savings of a number of investors who share a common financial goal. The fund manager invests this pool of money in securities, ranging the scheme. The different types of schemes are ? ? ? ? Balanced Funds Index Funds Sector Fund Equity Oriented Funds
•
Life Insurance: Now-a-days life insurance is also being considered as an investment avenue. Insurance premiums represent the sacrifice and the assured sum the benefit. Under it different schemes are: ? ? ? ? Endowment assurance policy Money back policy Whole life policy Term assurance policy
•
Real Estate: One of the most important assets in portfolio of investors is a residential house. In addition to a residential house, the more affluent investors are likely to be interested in the following types of real estate: ? Agricultural land
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? ?
•
Semi urban land Farm House
Precious Objects: Investors can also invest in the objects which have value. These comprises of: ? ? ? ? Gold Silver Precious stones Art objects
•
Financial Derivatives: These are such instruments which derive their value from some other underlying assets. It may be viewed as a side bet on the asset. The most important financial derivatives from the point of view of investors are: ? ? Options Futures
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CONCEPT OF MUTUAL FUND
A mutual fund is a professionally managed, collective investment scheme that pools money from many investors and invests typically in investment securities. Mutual fund is a trust that manages the pool of money collected from various investors and it is managed by a team of professional fund managers. The money thus collected is invested in accordance with the stated investment objectives in stocks, bonds, short-term money market instruments, other mutual funds, other securities, and/or commodities such as precious metals. Mutual Fund companies are known as Asset Management Companies (AMC). They offer a variety of diversified schemes. They pool the savings of investors and invest them in a well-diversified portfolio of sound investments. The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. The current value of such investments is calculated on daily basis and the same is reflected in the Net Asset Value (NAV) declared by the funds from time to time. This NAV keeps on changing with the changes in the equity and bond market. Therefore, the investments in Mutual Funds is not risk free, but a good managed Fund can give you regular and higher returns than when you can get from fixed deposits of a bank etc. 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.
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MUTUAL FUND OPERATIONS
Passed back to
Pool their money with
Generates
Invest in
The pool of money collected from various investors and it is managed by a team of professional fund managers. The Mutual Fund Manager invests the so collected money in various securities in accordance with the investment objective of the fund. Any Capital gains & losses from such investments are passed on to the investors in proportion of the number of units held by them.
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ORGANIZATION OF MUTUAL FUND
Unit Holders They are the parties to whom the mutual fund is sold. They are ultimate beneficiary of the income earned by the mutual funds. SEBI The regulation of mutual funds operating in India falls under the preview of authority of the “Securities and Exchange Board of India” (SEBI). Any person proposing to set up a mutual fund in India is required under the SEBI (Mutual Funds) Regulations, 1996 to be registered with the SEBI. Sponsor The sponsor should contribute at least 40% to the net worth of the AMC. However, if any person holds 40% or more of the net worth of an AMC shall be deemed to be a sponsor and will be required to fulfill the eligibility criteria in the Mutual Fund Regulations. The Sponsor 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. Trustee The mutual fund is required to have an independent Board of Trustees, i.e. two third of the trustees should be independent persons who are not associated with the sponsors in any manner. An AMC or any of its officers or employees is not eligible to act as a trustee of any mutual fund. The trustees are responsible for - inter alia – ensuring that the AMC has all its systems in place, all key personnel, auditors, registrar etc. have been appointed prior to the launch of any scheme. Transfer Agent The transfer agent is contracted by the AMC and is responsible for maintaining the register of investors / unit holders and every day settlements of purchases and redemption of units. The role of a transfer agent is to collect data from distributors relating to daily purchases and redemption of
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units. The Registrar and Transfer agent also handles communications with investors and updates investor records. Custodian The mutual fund is required, under the Mutual Fund Regulations, to appoint a custodian to carry out the custodial services for the schemes of the fund. Only institutions with substantial organizational strength, service capability in terms of computerization and other infrastructure facilities are approved to act as custodians. The custodian must be totally delinked from the AMC and must be registered with SEBI. This structure mitigates the risk of dishonest activity by separating the fund managers from the physical securities and investor records.
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CHARACTERISTICS OF A MUTUAL FUND
Some of the traditional & distinguishing characteristics of mutual funds are given below: • The investors share in the fund is denoted by “units”. The value of the units changes every day with change in the portfolio’s value. The value of one unit of investment is called as the Net Asset Value or NAV. • • • The pool of funds is invested in a portfolio of marketable investments. The value of the portfolio is updated every day. The investment portfolio of the mutual fund is created according to the stated investment objectives of the fund. Mutual fund units are “redeemable”. This means that when mutual fund investors want to sell their fund units, they sell them back to the fund or to broker acting for the fund at their Net Asset Value (NAV). • Investors purchase mutual fund units from the fund itself or through a broker for the fund, but are not able to purchase the units from other investors on a secondary market, such as the Bombay Stock Exchange (BSE) or National Stock Exchange (NSE).
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ADVANTAGES OF MUTUAL FUND TO THE INVESTORS
Every investment tool has some advantages and disadvantages. But it's important to remember that features and benefits that matter to one investor may not be important to you. Whether any particular feature is an advantage for you will depend on your unique circumstances, risk profile and investment objectives. For some investors, mutual funds provide an attractive investment choice because they generally offer the following benefits:
•
Professional Management: The primary advantage of funds is the professional management of your money. Investors purchase mutual funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments.
•
Portfolio Diversification: A proven principle of sound investment is that of diversification. By investing in many companies, the mutual funds protect themselves from drop in value of shares. Majority of people consider diversification as the major strength of mutual funds.
•
Reduction of Risk: Risk in investment is as to recovery of the principal amount and as to return on it. Mutual funds, on both fronts provide a comfortable situation for investors. The expert supervision, diversification, and liquidity of units ensured in mutual funds minimize the risks.
•
Economies of Scale: Mutual funds having large funds at their disposal avail economies of scale. The brokerage fee or trading commission may be reduced substantially. The reduced transaction costs obviously increases the income available for investors.
•
Liquidity: A distinct advantage of mutual fund over other investments is that, there is always a market for its units/shares. Moreover, Securities & Exchange Board of India requires that mutual funds in India have to ensure liquidity.
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•
Choice: Mutual funds come in a wide variety of types. Some mutual funds invest exclusively in a particular sector (e.g. energy funds), while others might target growth opportunities in general. There are thousands of funds, and each has its own objectives and focus. The key is for you to find the mutual funds that most closely match your own particular investment objectives.
•
Convenience: When you own a mutual fund, you don't need to worry about tracking the dozens of different securities in which the fund invests; rather, all you need to do is to keep track of the fund's performance.
•
Tax Shelter: Depending on the schemes of mutual funds, tax shelter is also available under section 80C. The returns from the mutual funds are also eligible for favorable tax treatment.
•
Systematic Investment Plans: A specific amount is invested for a continuous period at regular intervals under this plan. The investor decides the amount and also the mutual fund scheme. The amount to be invested could be as low as Rs. 500 per month.
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DISADVANTAGES OF MUTUAL FUND TO THE INVESTORS
•
No Insurance: Mutual funds, although regulated by the government are not insured against losses. That means that despite the risk-reducing diversification benefits provided by mutual funds, losses can occur, and it is possible (although extremely unlikely) that you could even lose your entire investment.
•
Dilution: Although diversification reduces the amount of risk involved in investing in mutual funds, it can also be a disadvantage due to dilution. For example, if a single security held by a mutual fund doubles in value, the mutual fund itself would not double in value because that security is only one small part of the fund's holdings. By holding a large number of different investments, mutual funds tend to do neither exceptionally well nor exceptionally poorly.
•
Inefficiency of Cash Reserves: Mutual funds usually maintain large cash reserves as protection against a large number of simultaneous withdrawals. Although this provides investors with liquidity, it means that some of the fund's money is invested in cash instead of assets, which tends to lower the investor's potential return.
•
Trading Limitations: Although mutual funds are highly liquid in general, most mutual funds cannot be bought or sold in the middle of the trading day. You can only buy and sell them at the end of the day, after they've calculated the current value of their holdings.
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TYPES OF MUTUAL FUNDS
Mutual funds come in many varieties. For example, there are index funds, stock funds, bond funds, money market funds, and more. Each of these may have a different investment objective and strategy and a different investment portfolio. Different mutual funds may also be subject to different risks, volatility, and fees and expenses. Wide variety of Mutual Fund Schemes exists 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
•
Open – Ended Schemes: An open – ended fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices. The key feature of open – ended schemes is liquidity.
•
Close – Ended Schemes: A close – ended fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the same time of the initial public issue and thereafter they can buy and sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close – ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices
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BY INVESTMENT OBJECTIVES
•
Growth Schemes: The aim of growth funds is to provide capital appreciation over the medium to long term. Such schemes normally invest a majority of their corpus in equities. It has been proven that returns from stocks are much better than the other investments had over the long term. Growth schemes are ideal for investors having a long term outlook seeking growth over a period of time.
•
Income Schemes: 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 and Government securities. Income Funds are ideal for capital stability and regular income. Capital appreciation in such funds may be limited, though risks are typically lower than that in a growth fund.
•
Balanced Schemes: The aim of Balanced Funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. This proportion affects the risks and the returns associated with the balanced fund - in case equities are allocated a higher proportion, investors would be exposed to risks similar to that of the equity market. Balanced funds with equal allocation to equities and fixed income securities are ideal for investors looking for a combination of income and moderate growth.
•
Money Market Schemes: The aim of Money Market Funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as Treasury Bills, Certificates of Deposit, Commercial Paper
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and Inter-Bank Call Money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for corporate and individual investors as a means to park their surplus funds for short periods.
OTHER SCHEMES
•
Tax Saving Schemes: These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws, as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction under Section 80C of the Indian Income Tax Act, 1961.
INVESTMENT STRATEGIES
1. Systematic Investment Plan: under this a fixed sum is invested each month on a fixed
date of a month. Payment is made through postdated cheques or direct debit facilities. The investor gets fewer units when the NAV is high and more units when the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA) 2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund. 3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he can withdraw a fixed amount each month.
•
Special Schemes:
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o
Index Schemes: Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE S&P CNX 50.The objective of Nifty Plan is to replicate the composition of the Nifty, with a view to endeavor to generate returns, which could approximately be the same as that of Nifty.
o
Sector Specific Schemes: Sector – specific funds are those Funds which make investments in those sectors that have been specified in the prospectus of the funds. The various sectors in which the Sector - Specific Funds in India make investments are software, petroleum stocks, power, and pharmaceuticals.
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CHAPTER -3 LITERATURE REVIEW
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INDIAN MUTUAL FUND INDUSTRY – THE FUTURE IN A DYNAMIC ENVIRONMENT (June 2009, KPMG & CII) This report highlighted the following findings. Low customer awareness levels and financial literacy pose the biggest challenge to channelizing household savings into mutual funds. Further, fund houses have shown limited focus on increasing retail penetration and building retail AUM. Customer awareness is the pre-requisite for the achievement of the industry growth potential, there is a need for planning, financing and executing initiatives aimed at increasing financial literacy and enhancing investor education across the country through a sustained collaborative effort across all stakeholders, which is expected to result in a massive increase in mutual fund penetration. Distributors and the mutual fund houses have exhibited limited interest in continuously engaging with customers post closure of sale as the commissions and incentives have been largely in the form of upfront fees from product sales. The next phase in the industry is likely to be characterized by a stronger focus on customer centricity, cost management and robust governance and regulatory framework – all aimed at enabling the industry to achieve sustained, profitable growth, going forward.
MAKING MUTUAL FUND WORK FOR YOU (June 2008, AMFI in association with Price Waterhouse LLP/FIRE Project funded by USAID and Ogilvy & Mather, Financial & Business Communications) This guide on the concept, operations and advantages of mutual funds and the rights of mutual fund unit holders was produced by AMFI to promote financial literacy among public regarding Indian Mutual fund Industry. This guide explains the concept of mutual fund, its advantages and risks associated with the mutual funds. The main aim of this guide was to spread awareness among investors regarding their rights as mutual fund unit holders. INDIA’S MUTUAL FUND INDUSTRY
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(Tetsuya Kamiyama, Nomura Capital Market Review, Vol. 10, No. 4, Winter 2007) The assets managed by India's mutual funds have shown impressive growth, and had totaled 3.3 trillion rupees (Rs 3.3 trillion) as of the end of March 2007. India's middle class, who are prospective investors in mutual funds, has been growing, and we expect to see further growth in the mutual fund market moving forward. In this paper, the researcher first provides an overview of the assets managed within India's mutual fund market, both now and in the past, and of the legal framework for mutual funds, and then discuss the current situation and recent trends in financial products, distribution channels and asset management companies.
THE FALL AND RISE OF MUTUAL FUNDS IN INDIA (Kaushal Shah & Associates, 2007) This article take the reader through the entire journey of mutual fund industry in India, its origin, its fall & rise throughout all these years and tried to predict what the future may hold for the mutual fund investors in the long run.
DOWNSIDE RISK ANALYSIS OF INDIAN EQUITY MUTUAL FUNDS: A VALUE AT RISK APPROACH (Soumya Guha Deb & Ashok Banerjee, International Research Journal of Finance & Economics, Issue 23, 2009) The current study attempts to highlight the importance of VAR as a measure of ‘downside risk’ for Indian equity mutual funds, an aspect which is completely ignored for performance reporting in Indian mutual fund industry. The study used three parametric models and one non parametric model and weekly returns of a sample of equity mutual fund schemes in India, to predict their weekly VAR on a ‘rolling’ basis and also tested the robustness and predictive ability of the models by employing two popular ‘back testing’ approaches. Overall the analysis shows that the Indian equity mutual funds have exhibited considerable downside risk in terms of VAR measures. Back
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testing of the models suggest that the ‘random walk’ and the ‘moving average’ models suffer from a downward bias and err by underestimating the VAR frequently. The EWMA and historical simulation models are free from that bias, but these two models, particularly the later, show tendency of providing too conservative estimates of VAR. VAR (Vale At Risk)
INDIA’S CAPITAL MARKETS: UNLOCKING THE DOOR TO FUTURE GROWTH (Deutsche Bank Research, Feb 2007) The paper follows an analysis of supply (bonds, equities and derivatives) and demand conditions (household and institutional investors) in India’s capital markets. Some stylized facts regarding India’s capital market infrastructure and corporate governance are first presented, followed by an analysis of its fixed income, equity and derivatives markets. Later, the paper discusses the classes of investors in India’s markets and the constraints they face in optimizing the risk/return objectives of their portfolios. Finally, some brief comments regarding the link between economic growth and capital markets reform conclude the paper.
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CHAPTER -4 RESEARCH METHODOLOGY
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INTRODUCTION Methodology includes a philosophically coherent collection of theories, concepts or ideas as they relate to a particular discipline or field of inquiry. Methodology refers to more than a simple set of method; rather it refers to the rationale and the philosophical assumptions that underlie a particular study relative to the scientific method. This is why scholarly literature often includes a section on the methodology of the researchers. This section does more than outline the researchers’ methods (as in, “I conducted a survey of 120 people over a six-week period and subjected the results to statistical analysis”, etc.); it might explain what the researchers’ views are. Researchers acknowledge the need for rigor, logic, and coherence in their methodologies, which are subject to peer review. In the present project regarding mutual funds I have tried to unrevealed the perception and attitudes of the investors across different sections of the society in Delhi. I have also tried to learn about the relationship between income, age and risk taking capacity of the investors. Keeping these objectives in mind I have conducted the research on mutual fund.
RESEARCH PROBLEM I conducted a market research project to examine the perception of investors towards mutual funds as an investment option. The judgment is based upon the survey conducted by me at various locations in Delhi. The survey is conducted with help of a structured questionnaire. The analysis of this study is done using software known as SPSS, Microsoft excel and complied using MS Word .The study will reveal about the different important aspects of Investors perception towards mutual funds.
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RESEARCH DESIGN Research design is a plan outlining how the information is to be gathered for an assessment or evaluation that includes identifying data gathering methods, instruments to be used and how the information will be organized and analyzed. Furthermore a research design also includes timely completion of the study and also keeping cost within the budgeted levels. In this market research project for mutual funds I have firstly prepared a questionnaire which comprises of 16 questions enquiring about the perception of numerous investors towards mutual funds. The structured questionnaire will then be analyzed with the help of Microsoft office & SPSS. Based on the analysis done in SPSS I have drawn conclusion
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DATA COLLECTION
TECHNIQUES OF DATA COLLECTION PRIMARY DATA In this project I have analyzed data from a sample size of 120 people from, mainly Delhi by administering questionnaires. SECONDARY DATA In the project I have collected the information from different sources about mutual funds that are from:
•
Internet Books Newspapers
•
•
RESEARCH INSTRUMENTS The kind of research instruments one uses greatly helps in realizing the reliability and validity of a research. In the present research I have used questionnaires as my research instrument. Questionnaire A questionnaire is a research instrument consisting of a series of questions and other prompts for the purpose of gathering information from respondents. Although they are often designed for statistical analysis of the responses, this is not always the case.
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SAMPLING Sampling is that part of statistical practice concerned with the selection of individual observations intended to yield some knowledge about a population of concern, especially for the purposes of statistical inference. Results from probability theory and statistical theory are employed to guide practice. Sampling is useful for a researcher as it saves time, effort and money. In this research on “mutual funds” I have followed the following steps: 1. Target Population: The target population used for sample selection here is the people above the age of 18 years who are the potential investors in mutual funds. 2. Geographical Spread of the Target Population (Sampling Frame): The area of research is Delhi. 3. Sampling Method Used: I have used the Non- Probability Sampling method which is Convenience Sampling. 4. Sample Size: the sample size is 120.
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DATA ANALYSIS TECHNIQUES USED Analysis of data is a process of inspecting, cleaning, transforming, and modeling data with the goal of highlighting useful information, suggesting conclusions, and supporting decision making. Data analysis has multiple facets and approaches, encompassing diverse techniques under a variety of names, in different business, science, and social science domains.
THE VARIOUS DATA ANALYSIS TECHNIQUES USED IN THE PRESENT RESEARCH IS ARE AS FOLLOWS: • •
Descriptive Data Analysis Crosstab Data Analysis
SOFTWARES USED
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SPSS (originally, Statistical Package for the Social Sciences) Microsoft office
•
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SCOPE OF THE STUDY
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A big boom has been witnessed in Mutual Fund Industry in recent times. A large number of new players have entered the market and trying to gain market share in this rapidly improving market.
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The study will help to know the preferences of the customers, which company, portfolio, mode of investment, and option for getting return and so on they prefer. This project report may help the company to make further planning and strategy.
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And it is valid for only India.
LIMITATIONS OF THE STUDY
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Time Constraint: As the research is conducted with in time period of 45 days, so this was not appropriate time period for such a big study as well for such a big area.
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Restricted to Delhi: Sample belongs to Delhi and it is represents the population of Delhi, so outside state this study may not work.
•
Validity: The research holds validity for the particular time period only because as the facts and figures keeps on changing and preferences also get changed.
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Chapter – 5 Data Analysis & Interpretation
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ANALYSIS & INTERPRETATION OF THE DATA
1.
(a) AGE DISTRIBUTION OF THE INVESTORS OF DELHI.
Age Group No. of Investor <= 30 12 31-35 18 36-40 30 41-45 24 46-50 20 >50 16
Interpretation:According to this chart out of 120 Mutual Fund investors of Delhi, the most are in the age group of 36-40 yrs. i.e. 25%, the second most investors are in the age group of 41-45yrs i.e. 20% and the least investors are in the age group of below 30 yrs.
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(b) EDUCATIONAL QUALIFICATION OF INVESTORS OF DELHI. Educational Qualification Graduate/Post Graduate Under Graduate Others Total Number of Investor 88 25 7 120
Interpretation:Out of 120 Mutual Fund investors 71% of the investors are Graduate/Post Graduate, 23% are Under Graduate and 6% are others (under HSC). So we can conclude that maximum number of investors in mutual fund is graduated.
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(c).
OCCUPATION OF THE INVESTORS OF DELHI. Occupation Government Services Private Services Business Agriculture Others No. of Investor 30 45 35 4 6
Interpretation:In Occupation group out of 120 investors, 38% are Pvt. Employees, 29% are Businessman, 25% are Govt. Employees, 3% are in Agriculture and 5% are in others. By this we can say that private employees & businessman are contributing more towards investment of mutual funds.
(d)
INCOME OF THE INVESTORS OF DELHI.
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Income Group (in 000’s) <=10 10-15 15-20 20-30 >30
No. of Investor 5 12 28 43 32
Interpretation:In the Income Group of the investors of Delhi, out of 120 investors 36% investors that are maximum are in the monthly income group Rs.20,000-30,000. 27% investors are in the monthly income group of more than Rs. 30,000 and the minimum investors i.e. 4% are in the monthly income group of below Rs. 10,000.
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2. INVESTORS INVESTED IN DIFFERENT KIND OF INSTRUMENTS.
Kind of Investments
Saving A/c Fixed Deposits Insurance Mutual Fund Post Office (NSC) Shares/Debentures Gold/Silver Real Estate
No. of Respondents
70 40 38 32 12 4 3 1
Interpretation:From the above graph it can be inferred that out of 200 people, 35% people have invested in Saving A/c, 19% in Insurance, 20% in Fixed Deposits, 16% in Mutual Fund, 6% in Post Office, 2% in Shares or Debentures, 1.5% in Gold/Silver and 0.5% in Real Estate. So in saving account investment is higher than other accounts.
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3. PREFERENCE OF FACTORS WHILE INVESTING
Factors No.of Respondents 40 60 64 36 Liquidity Low Risk High Return Trust
Interpretation:Out of 200 People, 32% People prefer to invest where there is High Return, 30% prefer to invest where there is Low Risk, 20% prefer easy Liquidity and 18% prefer Trust. So high return is one of the most important factors while investing in a particular mutual fund.
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4. AWARENESS ABOUT MUTUAL FUNDS AND ITS OPERATIONS
Response No. of Respondent
Yes 135
No 65
Interpretation:From the above chart it is inferred that 67% People are aware of Mutual Fund and its operations and 33% are not aware of Mutual Fund and its operations. So there is need to provide information to people regarding mutual fund investment.
5. SOURCE OF INFORMATION FOR CUSTOMERS ABOUT MUTUAL FUND Source of Information Advertisement Peer Group Bank Financial Advisors No. of Respondents 18 25 30 62
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Interpretation:From the above chart it can be recognized that the Financial Advisor is the most important source of information about Mutual Fund. Out of 135 Respondents, 46% know about Mutual fund Through Financial Advisor, 22% through Bank, 19% through Peer Group and 13% through Advertisement. 6. INVESTORS INVESTED IN MUTUAL FUND
Response Yes No Total
No. of Respondents 120 80 200
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Interpretation:Out of 200 people who were surveyed, 60% had invested in mutual fund and remaining 40% have not invested in mutual funds. We can conclude that if we can improve our information system then these remaining 40% people can also go for investment.
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7.
REASONS FOR NOT INVESTING IN MUTUAL FUNDS
Reason Lack of Awareness Higher Risk No Specific Reason
No. of Respondents 65 5 10
Interpretation:Out of 80 peoples who have not invested in mutual funds, 81% were not aware of what exactly mutual fund means. 13% of the people said they have not invested due to higher risk involved in it and remaining 6% failed to specify any specific reason for investing in mutual funds.
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8. INVESTORS INVESTED IN DIFFERENT ASSET MANAGEMENT COMPANY
(AMU)
Name of the AMC SBIMF UTI HDFC Reliance ICICI Prudential Others
No. of Investors 25 30 13 34 14 4
Interpretation:Most of investor who has invested in mutual fund prefers Reliance. 28% of the investor has invested in Reliance mutual fund. 25% of the investor has invested in UTI mutual fund. 21% of the investor has invested in SBI mutual fund. 12% has invested in ICICI prudential, 11% investor has
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invested in HDFC and remaining 4% have invested in the other mutual funds that are available in the market. 9. REASON FOR INVESTMENT IN SPECIFIC MUTUAL FUND
Reason for investment Associated with them Better return Agents advice
No. of Respondents 77 11 32
Interpretation:Out of 120 investors who have invested in the mutual fund, 64% of the investors have invested merely because of their association with the mutual funds firm. 27% of the investor has invested after getting advice from the agents and remaining 9% has invested because of higher returns.
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10. REASON FOR NOT INVESTING IN OTHER MUTUAL FUND OTHER THAN THEY ARE INVESTING IN.
Reason Not Aware Less Return Agent’s Advice
No. of Respondents 46 34 40
Interpretation:-
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Out of 120 investors who have invested 39% of the investors are not aware of the different kinds of mutual funds that are available in the market. 28% of the investors have not invested in other mutual fund due to less chances of return. Remaining 33% have invested after getting the advice from the agents.
11.
PREFERENCE OF INVESTORS FOR FUTURE INVESTMENT IN MUTUAL FUND
Name of AMC SBIMF UTI HDFC Reliance ICICI Prudential Others
No. of Investor 20 15 10 40 30 5
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Interpretation:Out of 120 investor majority have shown their interest in the Reliance Mutual fund with 33% of the investors want to invest in Reliance, whereas 25% of investors want to invest in ICICI prudential. 17% of the investor opted for SBI, 13% want to invest in the UTI mutual fund, 8% in HDFC and remaining 4% wants to invest some other.
12.
CHANNEL PREFERRED BY THE INVESTORS FOR MUTUAL FUND INVESTMENTS
Channel No.of Respondent
Financial Advisor Bank 72 18
AMC 30
Interpretation:Out of 1210 investor 60% preferred to invest through Financial Advisor, 25% prefer through AMC and remaining 15% through Bank. So we can interpret that financial advisors are key for investors to invest in a particular mutual fund.
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13.
MODE OF INVESTMENT PREFERRED BY THE INVESTOR
Mode of Investment
One Time Investment
Systematic Plan (SIP)
Investment
No. of Respondents
78
42
Interpretation:Out of 120 investor 65% have opted for one time investment and remaining 35% have opted for Systematic investment Plan (SIP). So majority of investors go for one time investment.
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14.
PREFERRED PORTFOLIOS BY THE INVESTORS
Portfolio Equity Debt Balanced
No. of Investors 56 20 44
Interpretation:From the above graph it can be seen that 46% preferred equity portfolio 37% preferred Balance and 17% preferred Debt portfolio. We may say that half of the investors prefer to invest in equity segment. \
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15.
OPTION FOR GETTING RETURN PREFERRED BY THE INVESTORS
Option
Dividend payout
Dividend Reinvestment
Growth
No.of Respondents
25
10
85
Interpretation:Out of 120 investors 71% preferred Growth option, 21% preferred Dividend option and Remaining 8% preferred Reinvestment option. So while investing mainly people prefer that growth is much important than other factors.
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16. FUNDS
PREFERENCE OF INVESTORS WHETHER TO INVEST IN SECTORAL
Response Yes No
No. of Respondents 25 75
Interpretation:Out of 120 investor 75% do not prefer to invest in sectoral fund because there is maximum risk and remaining 25% of investors prefer to invest in sectoral fund.
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CROSS TABULATION ANALYSIS OF QUESTIONAIRE
Income V’s Risk Taking Profile?
What type of risk profile do you belong to? High Risk taker Which Income group do you fall in Below 2,50,000 2,50,000 – 5,00,000 Above 5,00,000 3 7 Medium Risk taker 11 36 Low Risk Taker 11 17
7
11
5
70 60 50 40 30 20 10 0 Belo 25000 2500050000 Above 50000 L R k Takers ow is MediumR k is Takers H h R k Takers ig is
As we can observe from the above analysis, most of the respondents below the income of Rs.250,000 were low risk takers, while respondents between the income of Rs.250,000 to Rs.500,000 were medium risk takers and majority of respondents above the income of Rs.500,000 were also medium risk takers.
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Age group V’s Risk Profile?
What type of risk profile do you belong to? High Risk taker Which age group do you fall in? 18 – 25 years 26 – 45 years 46 – 60 years 3 12 7 Medium Risk taker 16 20 24 Low Risk Taker 8 12 18
25 20 15 10 5 0 H h R k taker MediumR k L R k Taker ig is is ow is taker 18-25years 26-45 years 46-60 years
As we can observe from the above analysis, most of the respondents between the age of 18 years to 25 years are medium risk takers. Majority of respondents between the age of 26 years to 45 years are also medium risk takers. Respondents between the age of 46 years to 60 years are also medium risk takers which were closely followed by low risk takers.
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Income group V’s Return Expectation?
What are your general impressions of Returns associated with Mutual Fund? High Returns Which Income group do you fall in Below 2,50,000 2,50,000 – 5,00,000 Above 5,00,000 6 5 Average Returns 22 48 Low Returns 4 8
10
13
4
50 45 40 35 30 25 20 15 10 5 0
H hR ig eturn Averag R e eturn Low R eturn
Below 25000
250 00-50000
Above 50000
As we can observe from the above analysis, majority of respondents in all the income groups perceived that mutual funds have average returns.
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Income group V's Risk Associated with Mutual Fund?
What are your general impressions of Risk associated with Mutual Fund? High Risk Which Income group do you fall in Below 2,50,000 2,50,000 – 5,00,000 Above 5,00,000 17 12 Average Risk 9 45 Low Risk 4 5
6
13
9
45 40 35 30 25 20 15 10 5 0 B elow 25000 25000-50000 Above 50000 H hR k ig is Averag R k e is Low R k is
As we can observe from the above analysis, most of the respondents below the income of Rs250,000 perceived mutual funds as high risk investments. While most of the respondents in other income groups perceived mutual funds as average risk investments.
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Age group V’s Returns Expected from Mutual Fund?
What are your general impressions of Returns associated with Mutual Fund? High Returns Which age group do you fall in? 18 – 25 years 26 – 45 years 46 – 60 years 4 12 4 Average Returns 19 28 38 Low Returns 5 5 5
40 35 30 25 20 15 10 5 0 18-25 years 26-45 years 46-60 years H hR ig eturns Averag R e eturn Low R eturna
As we can observe from the above analysis, majority of respondents in all the income groups perceived that mutual funds have average returns.
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Age group V’s Risk associated with Mutual Fund
What are your general impressions of Risk associated with Mutual Fund? High Risk Which age group do you fall in? 18 – 25 years 26 – 45 years 46 – 60 years 9 8 12 Average Risk 16 25 27 Low Risk 7 10 6
3 0 2 5 2 0 1 5 1 0 5 0 1 -2 yea 8 5 rs 2 -4 yea 6 5 rs 4 -6 yea 6 0 rs H hR ig isk Avera e R g isk L R ow isk
As we can observe from the above analysis, majority of respondents in all the income groups perceived mutual funds have average risk. However in the income group of 46 years to 60 years about 30% of respondents perceived mutual funds have high risk.
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Chapter – 7 Findings, Conclusions & Recommendations
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FINDINGS
• Majority of the respondents had a saving account in the bank where they had invested lots of money followed by insurance in the second place with 19% of the investors investing in insurance and 20% investing in fixed deposits. Only 16% of the investors had invested in Mutual fund.
•
Mostly respondent’s preferred High return while they are investing their money in any source of investment let it be mutual funds, saving account, shares, debentures, gold etc. The second most preferred low risk then liquidity and the least preferred trust.
•
Out of 80 investors who had not invested in mutual funds 81% were not aware of mutual fund, 13% told there is not any specific reason for not investing in mutual fund and 6% told there is likely to be higher risk in Mutual Fund.
•
Most of the investors had invested in Reliance or UTI mutual fund, ICICI prudential has also good brand position among investors, SBIMF places after ICICI prudential according to the respondents.
•
Most of the investors did not invest in other mutual funds due to less awareness about the various mutual funds that were available in the market. Second and most focused reason for not investing in other mutual funds is they were investing as per the advice of the market agents and very few were left who did not invest in other mutual funds due to less returns.
•
When asked for the future investment, the most preferred mutual fund for future investment was Reliance mutual funds followed by ICICI prudential at the second spot and SBI mutual fund followed after this two.
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•
The most preferred Portfolio was Equity, the second most was Balance (mixture of both equity and debt), and the least preferred Portfolio was Debt portfolio.
CONCLUSIONS
•
Running a successful Mutual Fund requires complete understanding of the peculiarities of the Indian Stock Market and also the awareness of the small investors. This study has made an attempt to understand the financial behavior of Mutual Fund investors in connection with the preferences of Brand (AMC), Products, and Channels etc. I observed that many of people have fear of Mutual Fund. They think their money will not be secure in Mutual Fund.
•
They need the knowledge of Mutual Fund and its related terms. They have to be made aware of what is mutual fund and how does it operates. What are its advantages and how it may lead to losses? Many of people do not have invested in mutual fund due to lack of awareness although they have money to invest. As the awareness and income is growing the number of mutual fund investors are also growing.
•
“Brand” plays important role for the investment for this small investors. People invest in those Companies where they have faith or they are well known with them. There are many AMCs in Delhi but only some are performing well due to Brand awareness. Some AMCs are not performing well although some of the schemes of them are giving good return because of not awareness about Brand. Reliance, UTI, SBIMF, ICICI Prudential etc. they are well known Brand, they are performing well and their Assets Under Management is larger than others whose Brand name are not well known like Principle, Sundaram, etc. Distribution channels are also important for the investment in mutual fund.
•
Financial Advisors are the most preferred channel for the investment in mutual fund. They can change investors’ mindset from one investment option to others. Many of investors directly invest their money through AMC because they do not have to pay
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entry load. Only those people invest directly who know well about mutual fund and its operations and those have time.
SUGGESTIONS AND RECOMMENDATIONS
• The most vital problem spotted is of ignorance. Investors should be made aware of the benefits. Nobody will invest until and unless he is fully convinced. Investors should be made to realize that ignorance is no longer bliss and what they are losing by not investing. • Mutual funds offer a lot of benefit which no other single option could offer. But most of the people are not even aware of what actually a mutual fund is? They only see it as just another investment option. So the advisors should try to change their mindsets. The advisors should target for more and more young investors. Young investors as well as persons at the height of their career would like to go for advisors due to lack of expertise and time.
•
Mutual Fund Company needs to give the training of the Individual Financial Advisors about the Fund/Scheme and its objective, because they are the main source to influence the investors.
•
Before making any investment Financial Advisors should first enquire about the risk tolerance of the investors/customers, their need and time (how long they want to invest). By considering these three things they can take the customers into consideration.
•
Younger people aged less than 35 will be a key new customer group into the future, so making greater efforts with younger customers who show some interest in investing should pay off.
•
Systematic Investment Plan (SIP) is one the innovative products launched by Assets Management companies very recently in the industry. SIP is easy for monthly salaried
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person as it provides the facility of do the investment in EMI. Though most of the prospects and potential investors are not aware about the SIP. There is a large scope for the companies to tap the salaried persons.
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Appendix I-Survey Questionnaire
DATE…..…/…….…/……. NAME……………………………………………………………………………………….. ADDRESS…………………………………………………………………………………... CONTACT NO……………………………………………………………………………… AGE: …………………………………………………………………………………………
1. What is your Educational Qualification?
Post Graduate Graduate Under Graduate Others
2. What is your Occupation?
Government Services Private Services Business Agriculture Others
3. What is your Income Range?
<=10 10-15 15-20
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20-30 >30
4. In which Instrument you usually Invest?
Saving A/c Fixed Deposits Insurance Mutual Fund Post Office (NSC) Shares/Debentures Gold/Silver Real Estate Other
5. To which Factor do you give more Weightage during an Investment?
Liquidity
Low Risk
High Return
Trust
6. Do you know about Mutual Fund and its Operation?
Yes No
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7. From where do you get Information Regarding Mutual Fund?
Advertisement Peer Group Bank Financial Advisors
8. Why do you not invest in mutual fund?
Lack of Awareness Higher Risk No Specific Reason
9. In which asset management company (AMU) do you invest?
SBIMF UTI HDFC Reliance ICICI Prudential Others
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10. What is specific reason to invest in particular a particular mutual fund?
Associated with them Better return Agents advice
11.
What is specific reason to not invest in other mutual fund?
Not Aware Less Return Agent’s Advice
12. In which mutual fund do you prefer to invest in future?
SBIMF UTI HDFC Reliance ICICI Prudential Others
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13. Which channel do you prefer to invest in mutual fund?
Financial Advisor
Bank
AMC
14. What is the mode of your investment in mutual fund?
One Time Investment
Systematic Investment Plan (SIP)
15. Which portfolio do you prefer during investing in mutual fund?
Equity Debt Balanced
16. Do you invest in Sectorial funds?
Yes No
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BIBLIOGRAPHY
Books:“Investment Management” by “B.K. Bhalla” “Portfolio and Security Analysis” by “Punithavathy Pandian” “Securities Analysis and Portfolio Management” by “V.A. Avadhani” “Mutual Funds in India” by “H. Sadhak”
Websites:
1)
www.indiamutualfunds.com
2) www.bseindia.com 3) www.moneycontrol.com 4) www.google.co.in 5) www.capitalmarket.com 6) www.indiainfoline.com 7) www.yahoofinance.com 8) www.afiindia.com 9) www.valueresearchonline.com
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doc_427817002.doc
To Know about the operation and performance of mutual fund in Delhi
A SUMMER TRAINING REPORT ON
“Investor’s Perception towards Mutual Fund Investment in Delhi”
Submitted By: Abdul Qudoos Master of Business Administration 2011-2013
Millennium Academy Of Professional Studies
Organization
IFCI Financial Services Ltd Janakpuri New Delhi
Project Guide
Mr.Mohammad Rizwan Ahmed Branch Head Janakpuri
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A SUMMER TRAINING REPORT ON
“Investor’s Perception towards Mutual Fund Investment in Delhi”
BY: Abdul Qudoos Under the Esteemed Guidance of Mr.Mohammad Rizwan Ahmed BRANCH HEAD JANAKPURI IFCI FINANCIAL SERVICES Ltd.
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ACKNOWLEDGEMENT
With immense pleasure I would like to present this report on “Investor’s Perception towards Mutual Fund Investment in Delhi”.
I express my sincere gratitude to Mr.Mohammad Rizwan Ahmed for guiding me throughout the project. He helped in guiding me for all the difficulties I faced. He helped me in giving the adequate knowledge regarding the various products and knowledge about the stock market. Acknowledgement is due to my parents, family members, friends who have helped me directly or indirectly in the successful completion of the project.
I am also thankful to my faculty guide Mr. Amit Agarwal and all my faculties for being with me and helping me in all the problems I faced. They explained how and what steps I would take to perform my project effectively.
Signature
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TABLE OF CONTENTS
? Acknowledgement ? Executive Summary ? Research Objective 3 5
7
Chapter 1:
Company Profile
? About IFCI Financial Services Ltd. ? SWOT Analysis 9
19
Chapter 2:
Introduction of Mutual funds
? Mutual Fund’s concept and its operation ? History of Mutual Funds ? Characteristics of Mutual Funds 21 23
31
Chapter 3:
41
Literature Review Research Methodology
? Research Problem ? Objectives of the Research ? Research Design 46 ? Sampling 45 46
Chapter 4:
49
51
Chapter 5: Chapter 6:
Data Analysis & Interpretation Findings, Conclusions,
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Suggestions & Recommendations
81
Appendix:
90
References, Bibliography
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EXECUTIVE SUMMARY In few years mutual fund has emerged as a tool for ensuring one’s financial wellbeing. Mutual funds have not only contributed to the Indian growth story but have also helped families tap into the success of Indian Industry. As information and awareness is rising more and more people are enjoying the benefits of investing in mutual funds. The main reason the number of retail mutual fund investors remains small is that people with incomes in India do not know that mutual funds exist. But once people are aware of mutual fund investment opportunities, the number who decide to invest in mutual funds increases to as one in five people. The trick for converting a person with no knowledge of mutual fund to a new mutual fund customer is to understand which of the potential investors are more likely to buy mutual funds and to use the right arguments in the sales process that customers will accept as important and relevant to their decision. This project gave me a great learning experience and at the same time it gave me enough scope to implement my analytical ability. The analysis and advice presented in this project report is based on market research on perception of investors towards investment in mutual funds. This report will help to know about the investor’s preferences in mutual fund means. Are they prefer any particular Asset Management Company (AMC), which investment strategy they follow systematic investment plan or one time plan, (SIP). This project as a whole can be divided into two part. The first part gives an insight about Mutual Fund and its various aspects, the company profile, objectives of research, Research Methodology. One can have a brief knowledge about mutual fund and its basics through the project. The second part of the project consists of data and its analysis collected through survey done on 120 people. For the collection of primary data I made a questionnaire and survey of 00 people. I visited other AMCs in Delhi to get some knowledge related to my topic. I studied about the products and strategies of other AMCs. This project covers the topic “Investor’s Perception towards Mutual Fund investment in Delhi” The project is beneficial for AMCs for generating information regarding the perception and attitude of mutual fund investors while they choose to invest by the help of a particular asset management company.
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OBJECTIVE OF THE RESEARCH The objectives of carrying out the research are: • • •
To find out the investors’ perception towards mutual funds and its performance To find out the Preferences of the investors for different asset management companies To know the Preferences for the portfolios
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CHAPTER -1 COMPANY PROFILE
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COMPANY PROFILE History
IFCI Financial Services Ltd (IFIN) was promoted in 1995, by IFCI Ltd., to provide a wide range of financial products and services to investors, institutional and retail. IFIN is primarily involved in Stock Broking, Investment Banking, Mutual Fund Distribution & Advisory Services, Depository Participant Services, Insurance Products Distribution and the like. IFIN is positioned as a global financial supermarket, built on the foundations of incisive research and trust. Intense interaction with investors helps us understand their specific needs and suggest holistic and appropriate financial solutions. Our team of professionals continuously scans the financial arena and stay ever prepared to educate investors and partner them in creating enduring wealth. IFCI Limited, Our Legendary Parent Institution The Government of India established The Industrial Finance Corporation of India (IFCI) on July 1, 1948, as India’s first and premier Development Financial Institution, to cater to the long – term financial needs of the industrial sector. By the early 1990s, with the need for greater flexibility to respond to the changing financial system, IFCI was mandated to directly access the capital markets for its fund needs. Therefore, the constitution of IFCI was changed in 1993 from a statutory Corporation to a Company under the Indian Companies Act, 1956. The name of the Company itself was changed to “IFCI Limited” with effect from October 1999. IFCI has achieved a financial turnaround with the consistent support and cooperation of all its stakeholders and is now endeavoring to re-position itself. In addition to its core competence in long-term lending to industrial and infrastructure sectors.
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Vision
“To emerge as the most trusted partner for upcoming enterprises in the
country, thereby contributing to the growth of the economy and in the process, optimizing returns on investment”
Mission
“To become the leading institutional player in VC industry of the country”
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BUSINESS OF THE COMPANY
IFCI Financial Services Limited deals in the Stock Market, Commodities Market, Agriculture Market, Merchant Banking, Investment Banking, Third party distributions (Mutual Fund, Insurance & SIP) & Portfolio Management. Stock Market:A stock market or equity market is a public entity for the trading of
company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.
Commodities Market:- Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts.
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Merchant Banking: - A merchant bank is a financial institution which provides capital to companies in the form of share ownership instead of loans. A merchant bank also provides advisory on corporate matters to the firms they lend to.
Investment Banking:- An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities. An investment bank may also assist companies involved in mergers and acquisitions, and provide ancillary services such as market making, trading of derivatives, fixed income instruments, foreign exchange, commodities, and equity securities
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Third Party Distributions (Mutual Fund):-It is a professionally managed investment scheme that pools money from many investors typically and invests in different investment securities.
Insurance:- It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount to be charged for a certain amount of insurance coverage is called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.
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Portfolio Management: It is an Investment management where the various securities (shares, bonds and other securities) are managed professionally and assets (e.g., real estate) in order to meet specified investment goals for the benefit of the investors. Investors may be institutions commonly funds). (insurance companies, pension funds, corporations, charities, educational establishments etc.) or private investors (both directly via investment contracts and more via collective investment schemes e.g. mutual funds or exchange-traded
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MEMBERSHIP AND REGISTRATIONS
? The National Stock Exchange of India Limited IFIN is a premier broking house and is currently a member of NSE in all the segments - Cash Market (NSE) (CM), Futures & Options (F&O), Whole Sale Debt Market (WDM) and Currency Derivatives. It caters to many prestigious institutional clients in the insurance, mutual funds and banking segments as well as Retail Individual and HNI segments.
? The Bombay Stock Exchange of India Limited (BSE)
IFIN is a member of one of the oldest stock exchanges in India, namely the BSE, in the Cash Market (CM) segment.
? MCX Stock Exchange Ltd (MCX-SX)
IFCI Financial Services is a member of MCX-SX for offering Currency Trading facility.
? National Spot Exchange Limited (NSEL) ? Depository Participant
Commodities Trading membership through IFIN Commodities Ltd As a Depository Participant with the National Security Depository Limited (NSDL) and Central Depository Participant Limited (CDSL), IFIN serves its clients in a wholesome fashion. Registered with the Association of Mutual Funds in India (AMFI) as a distributor of Mutual Fund products, IFIN has been highly active and very successful in the distribution of various mutual fund products IFIN is an IRDA approved Corporate Agent (CA) for both Life and Non-life Insurance sectors. It is empanelled with LIC for Life Insurance and Bajaj Allianz for the Non-Life Insurance sector. As a SEBI registered Portfolio Manager, we offer Discretionary Portfolio Management Services backed by Equity Research - Fundamental and Technical.
? Mutual Funds Distribution
? Insurance Corporate Agent
? Portfolio Management Services
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SWOT ANALYSIS OF THE COMPANY ON MY PERSONAL EXPERIENCES, LEARNING & OBSERVATIONS AS AN INTERN.
• • • • • • •
STRENGTHS All three accounts Demit, Trading & Savings A/C s are interrelated Research based analysis by excellent analyst at Chennai Corporate Office. More than 90% calls & tips are true. Less brokerage as per trading capacity of clients. More than 15 years’ experience employees Got license to enter in Banking Sector also. Semi-Government organization
• • • • •
WEAKNESS Very few branches all over India. No sales department for marketing & sales of their products & services. No advertisement in terms of banner, print media & TV ad also. Not involved in banking sector yet. Less extension limit as per the trading capacity of clients in comparison of their competitors.
• • •
OPPORTUNITIES Can go for market penetration through different-different products. Market share is increasing year by year. Ready to get in Banking Sector also. It will increase market share more rapidly than earlier.
•
THREATS Already existing competitors. For e.g. Religare, SMC, Share Khan & Motilal Oswal Securities.
•
Other main competitors who are already in banking sector also. For e.g ICICI Securities, Kotak Mahindra Securities & Standard Chartered Securities.
•
Increasing nationwide presence • Other competitors are sub broker & BDR of Brokerage House.
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Chapter – 2 Introduction
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INTRODUCTION TO MUTUAL FUND AND ITS VARIOUS ASPECTS
Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. This pool of money is invested in accordance with a stated objective. The joint ownership of the fund is thus “Mutual”, i.e. the fund belongs to all investors. 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 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. A Mutual Fund is an investment tool that allows small investors access to a well-diversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are issued and can be redeemed as needed. The fund’s Net Asset value (NAV) is determined each day. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders. When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit holder. Any change in the value of the investments made into capital market instruments (such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the market value of scheme's assets by the total number of units issued to the investors.
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HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY
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. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the Industry. In the past decade, Indian mutual fund industry had seen a dramatic improvement, both qualities wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the Assets under Management (AUM) was Rs67 billion. The private sector entry to the fund family raised the Aum to Rs. 470 billion in March 1993 and till April 2004; it reached the height if Rs. 1540 billion. The Mutual Fund Industry is obviously growing at a tremendous space with the mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under. First Phase – 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management. Second Phase – 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores.
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Third Phase – 1993-2003 (Entry of Private Sector Funds) 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. 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 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. 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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INVESTMENT ALTERNATIVES IN INDIA
•
Non Marketable Financial Assets: These are such financial assets which gives moderately high return but cannot be traded in market. ? ? ? ? Bank Deposits Post Office Schemes Company FDs PPF
•
Equity Shares: These are shares of company and can be traded in secondary market. Investors get benefit by change in price of share and dividend given by companies. Equity shares represent ownership capital. As an equity shareholder, a person has an ownership stake in the company. This essentially means that the person has a residual interest in income and wealth of the company. These can be classified into following broad categories as per stock market: ? ? ? ? ? Blue chip shares Growth shares Income shares Cyclic shares Speculative shares
•
Bonds: Bonds are the instruments that are considered as a relatively safer investment avenues.
?
G- sec bonds GOI relief funds Govt. agency funds PSU Bonds RBI BOND Debenture of private sector co.
22
? ? ? ? ?
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•
Money Market Instrument: By convention, the term "money market" refers to the market for short-term requirement and deployment of funds. Money market instruments are those instruments, which have a maturity period of less than one year. ? ? ? T-Bills Certificate of Deposit Commercial Paper
•
Mutual Funds- A mutual fund is a trust that pools together the savings of a number of investors who share a common financial goal. The fund manager invests this pool of money in securities, ranging the scheme. The different types of schemes are ? ? ? ? Balanced Funds Index Funds Sector Fund Equity Oriented Funds
•
Life Insurance: Now-a-days life insurance is also being considered as an investment avenue. Insurance premiums represent the sacrifice and the assured sum the benefit. Under it different schemes are: ? ? ? ? Endowment assurance policy Money back policy Whole life policy Term assurance policy
•
Real Estate: One of the most important assets in portfolio of investors is a residential house. In addition to a residential house, the more affluent investors are likely to be interested in the following types of real estate: ? Agricultural land
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? ?
•
Semi urban land Farm House
Precious Objects: Investors can also invest in the objects which have value. These comprises of: ? ? ? ? Gold Silver Precious stones Art objects
•
Financial Derivatives: These are such instruments which derive their value from some other underlying assets. It may be viewed as a side bet on the asset. The most important financial derivatives from the point of view of investors are: ? ? Options Futures
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CONCEPT OF MUTUAL FUND
A mutual fund is a professionally managed, collective investment scheme that pools money from many investors and invests typically in investment securities. Mutual fund is a trust that manages the pool of money collected from various investors and it is managed by a team of professional fund managers. The money thus collected is invested in accordance with the stated investment objectives in stocks, bonds, short-term money market instruments, other mutual funds, other securities, and/or commodities such as precious metals. Mutual Fund companies are known as Asset Management Companies (AMC). They offer a variety of diversified schemes. They pool the savings of investors and invest them in a well-diversified portfolio of sound investments. The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. The current value of such investments is calculated on daily basis and the same is reflected in the Net Asset Value (NAV) declared by the funds from time to time. This NAV keeps on changing with the changes in the equity and bond market. Therefore, the investments in Mutual Funds is not risk free, but a good managed Fund can give you regular and higher returns than when you can get from fixed deposits of a bank etc. 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.
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MUTUAL FUND OPERATIONS
Passed back to
Pool their money with
Generates
Invest in
The pool of money collected from various investors and it is managed by a team of professional fund managers. The Mutual Fund Manager invests the so collected money in various securities in accordance with the investment objective of the fund. Any Capital gains & losses from such investments are passed on to the investors in proportion of the number of units held by them.
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ORGANIZATION OF MUTUAL FUND
Unit Holders They are the parties to whom the mutual fund is sold. They are ultimate beneficiary of the income earned by the mutual funds. SEBI The regulation of mutual funds operating in India falls under the preview of authority of the “Securities and Exchange Board of India” (SEBI). Any person proposing to set up a mutual fund in India is required under the SEBI (Mutual Funds) Regulations, 1996 to be registered with the SEBI. Sponsor The sponsor should contribute at least 40% to the net worth of the AMC. However, if any person holds 40% or more of the net worth of an AMC shall be deemed to be a sponsor and will be required to fulfill the eligibility criteria in the Mutual Fund Regulations. The Sponsor 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. Trustee The mutual fund is required to have an independent Board of Trustees, i.e. two third of the trustees should be independent persons who are not associated with the sponsors in any manner. An AMC or any of its officers or employees is not eligible to act as a trustee of any mutual fund. The trustees are responsible for - inter alia – ensuring that the AMC has all its systems in place, all key personnel, auditors, registrar etc. have been appointed prior to the launch of any scheme. Transfer Agent The transfer agent is contracted by the AMC and is responsible for maintaining the register of investors / unit holders and every day settlements of purchases and redemption of units. The role of a transfer agent is to collect data from distributors relating to daily purchases and redemption of
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units. The Registrar and Transfer agent also handles communications with investors and updates investor records. Custodian The mutual fund is required, under the Mutual Fund Regulations, to appoint a custodian to carry out the custodial services for the schemes of the fund. Only institutions with substantial organizational strength, service capability in terms of computerization and other infrastructure facilities are approved to act as custodians. The custodian must be totally delinked from the AMC and must be registered with SEBI. This structure mitigates the risk of dishonest activity by separating the fund managers from the physical securities and investor records.
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CHARACTERISTICS OF A MUTUAL FUND
Some of the traditional & distinguishing characteristics of mutual funds are given below: • The investors share in the fund is denoted by “units”. The value of the units changes every day with change in the portfolio’s value. The value of one unit of investment is called as the Net Asset Value or NAV. • • • The pool of funds is invested in a portfolio of marketable investments. The value of the portfolio is updated every day. The investment portfolio of the mutual fund is created according to the stated investment objectives of the fund. Mutual fund units are “redeemable”. This means that when mutual fund investors want to sell their fund units, they sell them back to the fund or to broker acting for the fund at their Net Asset Value (NAV). • Investors purchase mutual fund units from the fund itself or through a broker for the fund, but are not able to purchase the units from other investors on a secondary market, such as the Bombay Stock Exchange (BSE) or National Stock Exchange (NSE).
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ADVANTAGES OF MUTUAL FUND TO THE INVESTORS
Every investment tool has some advantages and disadvantages. But it's important to remember that features and benefits that matter to one investor may not be important to you. Whether any particular feature is an advantage for you will depend on your unique circumstances, risk profile and investment objectives. For some investors, mutual funds provide an attractive investment choice because they generally offer the following benefits:
•
Professional Management: The primary advantage of funds is the professional management of your money. Investors purchase mutual funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments.
•
Portfolio Diversification: A proven principle of sound investment is that of diversification. By investing in many companies, the mutual funds protect themselves from drop in value of shares. Majority of people consider diversification as the major strength of mutual funds.
•
Reduction of Risk: Risk in investment is as to recovery of the principal amount and as to return on it. Mutual funds, on both fronts provide a comfortable situation for investors. The expert supervision, diversification, and liquidity of units ensured in mutual funds minimize the risks.
•
Economies of Scale: Mutual funds having large funds at their disposal avail economies of scale. The brokerage fee or trading commission may be reduced substantially. The reduced transaction costs obviously increases the income available for investors.
•
Liquidity: A distinct advantage of mutual fund over other investments is that, there is always a market for its units/shares. Moreover, Securities & Exchange Board of India requires that mutual funds in India have to ensure liquidity.
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•
Choice: Mutual funds come in a wide variety of types. Some mutual funds invest exclusively in a particular sector (e.g. energy funds), while others might target growth opportunities in general. There are thousands of funds, and each has its own objectives and focus. The key is for you to find the mutual funds that most closely match your own particular investment objectives.
•
Convenience: When you own a mutual fund, you don't need to worry about tracking the dozens of different securities in which the fund invests; rather, all you need to do is to keep track of the fund's performance.
•
Tax Shelter: Depending on the schemes of mutual funds, tax shelter is also available under section 80C. The returns from the mutual funds are also eligible for favorable tax treatment.
•
Systematic Investment Plans: A specific amount is invested for a continuous period at regular intervals under this plan. The investor decides the amount and also the mutual fund scheme. The amount to be invested could be as low as Rs. 500 per month.
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DISADVANTAGES OF MUTUAL FUND TO THE INVESTORS
•
No Insurance: Mutual funds, although regulated by the government are not insured against losses. That means that despite the risk-reducing diversification benefits provided by mutual funds, losses can occur, and it is possible (although extremely unlikely) that you could even lose your entire investment.
•
Dilution: Although diversification reduces the amount of risk involved in investing in mutual funds, it can also be a disadvantage due to dilution. For example, if a single security held by a mutual fund doubles in value, the mutual fund itself would not double in value because that security is only one small part of the fund's holdings. By holding a large number of different investments, mutual funds tend to do neither exceptionally well nor exceptionally poorly.
•
Inefficiency of Cash Reserves: Mutual funds usually maintain large cash reserves as protection against a large number of simultaneous withdrawals. Although this provides investors with liquidity, it means that some of the fund's money is invested in cash instead of assets, which tends to lower the investor's potential return.
•
Trading Limitations: Although mutual funds are highly liquid in general, most mutual funds cannot be bought or sold in the middle of the trading day. You can only buy and sell them at the end of the day, after they've calculated the current value of their holdings.
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TYPES OF MUTUAL FUNDS
Mutual funds come in many varieties. For example, there are index funds, stock funds, bond funds, money market funds, and more. Each of these may have a different investment objective and strategy and a different investment portfolio. Different mutual funds may also be subject to different risks, volatility, and fees and expenses. Wide variety of Mutual Fund Schemes exists 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
•
Open – Ended Schemes: An open – ended fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices. The key feature of open – ended schemes is liquidity.
•
Close – Ended Schemes: A close – ended fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the same time of the initial public issue and thereafter they can buy and sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close – ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices
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BY INVESTMENT OBJECTIVES
•
Growth Schemes: The aim of growth funds is to provide capital appreciation over the medium to long term. Such schemes normally invest a majority of their corpus in equities. It has been proven that returns from stocks are much better than the other investments had over the long term. Growth schemes are ideal for investors having a long term outlook seeking growth over a period of time.
•
Income Schemes: 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 and Government securities. Income Funds are ideal for capital stability and regular income. Capital appreciation in such funds may be limited, though risks are typically lower than that in a growth fund.
•
Balanced Schemes: The aim of Balanced Funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. This proportion affects the risks and the returns associated with the balanced fund - in case equities are allocated a higher proportion, investors would be exposed to risks similar to that of the equity market. Balanced funds with equal allocation to equities and fixed income securities are ideal for investors looking for a combination of income and moderate growth.
•
Money Market Schemes: The aim of Money Market Funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as Treasury Bills, Certificates of Deposit, Commercial Paper
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and Inter-Bank Call Money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for corporate and individual investors as a means to park their surplus funds for short periods.
OTHER SCHEMES
•
Tax Saving Schemes: These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws, as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction under Section 80C of the Indian Income Tax Act, 1961.
INVESTMENT STRATEGIES
1. Systematic Investment Plan: under this a fixed sum is invested each month on a fixed
date of a month. Payment is made through postdated cheques or direct debit facilities. The investor gets fewer units when the NAV is high and more units when the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA) 2. Systematic Transfer Plan: under this an investor invest in debt oriented fund and give instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund. 3. Systematic Withdrawal Plan: if someone wishes to withdraw from a mutual fund then he can withdraw a fixed amount each month.
•
Special Schemes:
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o
Index Schemes: Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE S&P CNX 50.The objective of Nifty Plan is to replicate the composition of the Nifty, with a view to endeavor to generate returns, which could approximately be the same as that of Nifty.
o
Sector Specific Schemes: Sector – specific funds are those Funds which make investments in those sectors that have been specified in the prospectus of the funds. The various sectors in which the Sector - Specific Funds in India make investments are software, petroleum stocks, power, and pharmaceuticals.
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CHAPTER -3 LITERATURE REVIEW
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INDIAN MUTUAL FUND INDUSTRY – THE FUTURE IN A DYNAMIC ENVIRONMENT (June 2009, KPMG & CII) This report highlighted the following findings. Low customer awareness levels and financial literacy pose the biggest challenge to channelizing household savings into mutual funds. Further, fund houses have shown limited focus on increasing retail penetration and building retail AUM. Customer awareness is the pre-requisite for the achievement of the industry growth potential, there is a need for planning, financing and executing initiatives aimed at increasing financial literacy and enhancing investor education across the country through a sustained collaborative effort across all stakeholders, which is expected to result in a massive increase in mutual fund penetration. Distributors and the mutual fund houses have exhibited limited interest in continuously engaging with customers post closure of sale as the commissions and incentives have been largely in the form of upfront fees from product sales. The next phase in the industry is likely to be characterized by a stronger focus on customer centricity, cost management and robust governance and regulatory framework – all aimed at enabling the industry to achieve sustained, profitable growth, going forward.
MAKING MUTUAL FUND WORK FOR YOU (June 2008, AMFI in association with Price Waterhouse LLP/FIRE Project funded by USAID and Ogilvy & Mather, Financial & Business Communications) This guide on the concept, operations and advantages of mutual funds and the rights of mutual fund unit holders was produced by AMFI to promote financial literacy among public regarding Indian Mutual fund Industry. This guide explains the concept of mutual fund, its advantages and risks associated with the mutual funds. The main aim of this guide was to spread awareness among investors regarding their rights as mutual fund unit holders. INDIA’S MUTUAL FUND INDUSTRY
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(Tetsuya Kamiyama, Nomura Capital Market Review, Vol. 10, No. 4, Winter 2007) The assets managed by India's mutual funds have shown impressive growth, and had totaled 3.3 trillion rupees (Rs 3.3 trillion) as of the end of March 2007. India's middle class, who are prospective investors in mutual funds, has been growing, and we expect to see further growth in the mutual fund market moving forward. In this paper, the researcher first provides an overview of the assets managed within India's mutual fund market, both now and in the past, and of the legal framework for mutual funds, and then discuss the current situation and recent trends in financial products, distribution channels and asset management companies.
THE FALL AND RISE OF MUTUAL FUNDS IN INDIA (Kaushal Shah & Associates, 2007) This article take the reader through the entire journey of mutual fund industry in India, its origin, its fall & rise throughout all these years and tried to predict what the future may hold for the mutual fund investors in the long run.
DOWNSIDE RISK ANALYSIS OF INDIAN EQUITY MUTUAL FUNDS: A VALUE AT RISK APPROACH (Soumya Guha Deb & Ashok Banerjee, International Research Journal of Finance & Economics, Issue 23, 2009) The current study attempts to highlight the importance of VAR as a measure of ‘downside risk’ for Indian equity mutual funds, an aspect which is completely ignored for performance reporting in Indian mutual fund industry. The study used three parametric models and one non parametric model and weekly returns of a sample of equity mutual fund schemes in India, to predict their weekly VAR on a ‘rolling’ basis and also tested the robustness and predictive ability of the models by employing two popular ‘back testing’ approaches. Overall the analysis shows that the Indian equity mutual funds have exhibited considerable downside risk in terms of VAR measures. Back
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testing of the models suggest that the ‘random walk’ and the ‘moving average’ models suffer from a downward bias and err by underestimating the VAR frequently. The EWMA and historical simulation models are free from that bias, but these two models, particularly the later, show tendency of providing too conservative estimates of VAR. VAR (Vale At Risk)
INDIA’S CAPITAL MARKETS: UNLOCKING THE DOOR TO FUTURE GROWTH (Deutsche Bank Research, Feb 2007) The paper follows an analysis of supply (bonds, equities and derivatives) and demand conditions (household and institutional investors) in India’s capital markets. Some stylized facts regarding India’s capital market infrastructure and corporate governance are first presented, followed by an analysis of its fixed income, equity and derivatives markets. Later, the paper discusses the classes of investors in India’s markets and the constraints they face in optimizing the risk/return objectives of their portfolios. Finally, some brief comments regarding the link between economic growth and capital markets reform conclude the paper.
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CHAPTER -4 RESEARCH METHODOLOGY
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INTRODUCTION Methodology includes a philosophically coherent collection of theories, concepts or ideas as they relate to a particular discipline or field of inquiry. Methodology refers to more than a simple set of method; rather it refers to the rationale and the philosophical assumptions that underlie a particular study relative to the scientific method. This is why scholarly literature often includes a section on the methodology of the researchers. This section does more than outline the researchers’ methods (as in, “I conducted a survey of 120 people over a six-week period and subjected the results to statistical analysis”, etc.); it might explain what the researchers’ views are. Researchers acknowledge the need for rigor, logic, and coherence in their methodologies, which are subject to peer review. In the present project regarding mutual funds I have tried to unrevealed the perception and attitudes of the investors across different sections of the society in Delhi. I have also tried to learn about the relationship between income, age and risk taking capacity of the investors. Keeping these objectives in mind I have conducted the research on mutual fund.
RESEARCH PROBLEM I conducted a market research project to examine the perception of investors towards mutual funds as an investment option. The judgment is based upon the survey conducted by me at various locations in Delhi. The survey is conducted with help of a structured questionnaire. The analysis of this study is done using software known as SPSS, Microsoft excel and complied using MS Word .The study will reveal about the different important aspects of Investors perception towards mutual funds.
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RESEARCH DESIGN Research design is a plan outlining how the information is to be gathered for an assessment or evaluation that includes identifying data gathering methods, instruments to be used and how the information will be organized and analyzed. Furthermore a research design also includes timely completion of the study and also keeping cost within the budgeted levels. In this market research project for mutual funds I have firstly prepared a questionnaire which comprises of 16 questions enquiring about the perception of numerous investors towards mutual funds. The structured questionnaire will then be analyzed with the help of Microsoft office & SPSS. Based on the analysis done in SPSS I have drawn conclusion
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DATA COLLECTION
TECHNIQUES OF DATA COLLECTION PRIMARY DATA In this project I have analyzed data from a sample size of 120 people from, mainly Delhi by administering questionnaires. SECONDARY DATA In the project I have collected the information from different sources about mutual funds that are from:
•
Internet Books Newspapers
•
•
RESEARCH INSTRUMENTS The kind of research instruments one uses greatly helps in realizing the reliability and validity of a research. In the present research I have used questionnaires as my research instrument. Questionnaire A questionnaire is a research instrument consisting of a series of questions and other prompts for the purpose of gathering information from respondents. Although they are often designed for statistical analysis of the responses, this is not always the case.
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SAMPLING Sampling is that part of statistical practice concerned with the selection of individual observations intended to yield some knowledge about a population of concern, especially for the purposes of statistical inference. Results from probability theory and statistical theory are employed to guide practice. Sampling is useful for a researcher as it saves time, effort and money. In this research on “mutual funds” I have followed the following steps: 1. Target Population: The target population used for sample selection here is the people above the age of 18 years who are the potential investors in mutual funds. 2. Geographical Spread of the Target Population (Sampling Frame): The area of research is Delhi. 3. Sampling Method Used: I have used the Non- Probability Sampling method which is Convenience Sampling. 4. Sample Size: the sample size is 120.
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DATA ANALYSIS TECHNIQUES USED Analysis of data is a process of inspecting, cleaning, transforming, and modeling data with the goal of highlighting useful information, suggesting conclusions, and supporting decision making. Data analysis has multiple facets and approaches, encompassing diverse techniques under a variety of names, in different business, science, and social science domains.
THE VARIOUS DATA ANALYSIS TECHNIQUES USED IN THE PRESENT RESEARCH IS ARE AS FOLLOWS: • •
Descriptive Data Analysis Crosstab Data Analysis
SOFTWARES USED
•
SPSS (originally, Statistical Package for the Social Sciences) Microsoft office
•
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SCOPE OF THE STUDY
•
A big boom has been witnessed in Mutual Fund Industry in recent times. A large number of new players have entered the market and trying to gain market share in this rapidly improving market.
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The study will help to know the preferences of the customers, which company, portfolio, mode of investment, and option for getting return and so on they prefer. This project report may help the company to make further planning and strategy.
•
And it is valid for only India.
LIMITATIONS OF THE STUDY
•
Time Constraint: As the research is conducted with in time period of 45 days, so this was not appropriate time period for such a big study as well for such a big area.
•
Restricted to Delhi: Sample belongs to Delhi and it is represents the population of Delhi, so outside state this study may not work.
•
Validity: The research holds validity for the particular time period only because as the facts and figures keeps on changing and preferences also get changed.
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Chapter – 5 Data Analysis & Interpretation
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ANALYSIS & INTERPRETATION OF THE DATA
1.
(a) AGE DISTRIBUTION OF THE INVESTORS OF DELHI.
Age Group No. of Investor <= 30 12 31-35 18 36-40 30 41-45 24 46-50 20 >50 16
Interpretation:According to this chart out of 120 Mutual Fund investors of Delhi, the most are in the age group of 36-40 yrs. i.e. 25%, the second most investors are in the age group of 41-45yrs i.e. 20% and the least investors are in the age group of below 30 yrs.
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(b) EDUCATIONAL QUALIFICATION OF INVESTORS OF DELHI. Educational Qualification Graduate/Post Graduate Under Graduate Others Total Number of Investor 88 25 7 120
Interpretation:Out of 120 Mutual Fund investors 71% of the investors are Graduate/Post Graduate, 23% are Under Graduate and 6% are others (under HSC). So we can conclude that maximum number of investors in mutual fund is graduated.
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(c).
OCCUPATION OF THE INVESTORS OF DELHI. Occupation Government Services Private Services Business Agriculture Others No. of Investor 30 45 35 4 6
Interpretation:In Occupation group out of 120 investors, 38% are Pvt. Employees, 29% are Businessman, 25% are Govt. Employees, 3% are in Agriculture and 5% are in others. By this we can say that private employees & businessman are contributing more towards investment of mutual funds.
(d)
INCOME OF THE INVESTORS OF DELHI.
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Income Group (in 000’s) <=10 10-15 15-20 20-30 >30
No. of Investor 5 12 28 43 32
Interpretation:In the Income Group of the investors of Delhi, out of 120 investors 36% investors that are maximum are in the monthly income group Rs.20,000-30,000. 27% investors are in the monthly income group of more than Rs. 30,000 and the minimum investors i.e. 4% are in the monthly income group of below Rs. 10,000.
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2. INVESTORS INVESTED IN DIFFERENT KIND OF INSTRUMENTS.
Kind of Investments
Saving A/c Fixed Deposits Insurance Mutual Fund Post Office (NSC) Shares/Debentures Gold/Silver Real Estate
No. of Respondents
70 40 38 32 12 4 3 1
Interpretation:From the above graph it can be inferred that out of 200 people, 35% people have invested in Saving A/c, 19% in Insurance, 20% in Fixed Deposits, 16% in Mutual Fund, 6% in Post Office, 2% in Shares or Debentures, 1.5% in Gold/Silver and 0.5% in Real Estate. So in saving account investment is higher than other accounts.
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3. PREFERENCE OF FACTORS WHILE INVESTING
Factors No.of Respondents 40 60 64 36 Liquidity Low Risk High Return Trust
Interpretation:Out of 200 People, 32% People prefer to invest where there is High Return, 30% prefer to invest where there is Low Risk, 20% prefer easy Liquidity and 18% prefer Trust. So high return is one of the most important factors while investing in a particular mutual fund.
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4. AWARENESS ABOUT MUTUAL FUNDS AND ITS OPERATIONS
Response No. of Respondent
Yes 135
No 65
Interpretation:From the above chart it is inferred that 67% People are aware of Mutual Fund and its operations and 33% are not aware of Mutual Fund and its operations. So there is need to provide information to people regarding mutual fund investment.
5. SOURCE OF INFORMATION FOR CUSTOMERS ABOUT MUTUAL FUND Source of Information Advertisement Peer Group Bank Financial Advisors No. of Respondents 18 25 30 62
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Interpretation:From the above chart it can be recognized that the Financial Advisor is the most important source of information about Mutual Fund. Out of 135 Respondents, 46% know about Mutual fund Through Financial Advisor, 22% through Bank, 19% through Peer Group and 13% through Advertisement. 6. INVESTORS INVESTED IN MUTUAL FUND
Response Yes No Total
No. of Respondents 120 80 200
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Interpretation:Out of 200 people who were surveyed, 60% had invested in mutual fund and remaining 40% have not invested in mutual funds. We can conclude that if we can improve our information system then these remaining 40% people can also go for investment.
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7.
REASONS FOR NOT INVESTING IN MUTUAL FUNDS
Reason Lack of Awareness Higher Risk No Specific Reason
No. of Respondents 65 5 10
Interpretation:Out of 80 peoples who have not invested in mutual funds, 81% were not aware of what exactly mutual fund means. 13% of the people said they have not invested due to higher risk involved in it and remaining 6% failed to specify any specific reason for investing in mutual funds.
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8. INVESTORS INVESTED IN DIFFERENT ASSET MANAGEMENT COMPANY
(AMU)
Name of the AMC SBIMF UTI HDFC Reliance ICICI Prudential Others
No. of Investors 25 30 13 34 14 4
Interpretation:Most of investor who has invested in mutual fund prefers Reliance. 28% of the investor has invested in Reliance mutual fund. 25% of the investor has invested in UTI mutual fund. 21% of the investor has invested in SBI mutual fund. 12% has invested in ICICI prudential, 11% investor has
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invested in HDFC and remaining 4% have invested in the other mutual funds that are available in the market. 9. REASON FOR INVESTMENT IN SPECIFIC MUTUAL FUND
Reason for investment Associated with them Better return Agents advice
No. of Respondents 77 11 32
Interpretation:Out of 120 investors who have invested in the mutual fund, 64% of the investors have invested merely because of their association with the mutual funds firm. 27% of the investor has invested after getting advice from the agents and remaining 9% has invested because of higher returns.
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10. REASON FOR NOT INVESTING IN OTHER MUTUAL FUND OTHER THAN THEY ARE INVESTING IN.
Reason Not Aware Less Return Agent’s Advice
No. of Respondents 46 34 40
Interpretation:-
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Out of 120 investors who have invested 39% of the investors are not aware of the different kinds of mutual funds that are available in the market. 28% of the investors have not invested in other mutual fund due to less chances of return. Remaining 33% have invested after getting the advice from the agents.
11.
PREFERENCE OF INVESTORS FOR FUTURE INVESTMENT IN MUTUAL FUND
Name of AMC SBIMF UTI HDFC Reliance ICICI Prudential Others
No. of Investor 20 15 10 40 30 5
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Interpretation:Out of 120 investor majority have shown their interest in the Reliance Mutual fund with 33% of the investors want to invest in Reliance, whereas 25% of investors want to invest in ICICI prudential. 17% of the investor opted for SBI, 13% want to invest in the UTI mutual fund, 8% in HDFC and remaining 4% wants to invest some other.
12.
CHANNEL PREFERRED BY THE INVESTORS FOR MUTUAL FUND INVESTMENTS
Channel No.of Respondent
Financial Advisor Bank 72 18
AMC 30
Interpretation:Out of 1210 investor 60% preferred to invest through Financial Advisor, 25% prefer through AMC and remaining 15% through Bank. So we can interpret that financial advisors are key for investors to invest in a particular mutual fund.
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13.
MODE OF INVESTMENT PREFERRED BY THE INVESTOR
Mode of Investment
One Time Investment
Systematic Plan (SIP)
Investment
No. of Respondents
78
42
Interpretation:Out of 120 investor 65% have opted for one time investment and remaining 35% have opted for Systematic investment Plan (SIP). So majority of investors go for one time investment.
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14.
PREFERRED PORTFOLIOS BY THE INVESTORS
Portfolio Equity Debt Balanced
No. of Investors 56 20 44
Interpretation:From the above graph it can be seen that 46% preferred equity portfolio 37% preferred Balance and 17% preferred Debt portfolio. We may say that half of the investors prefer to invest in equity segment. \
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15.
OPTION FOR GETTING RETURN PREFERRED BY THE INVESTORS
Option
Dividend payout
Dividend Reinvestment
Growth
No.of Respondents
25
10
85
Interpretation:Out of 120 investors 71% preferred Growth option, 21% preferred Dividend option and Remaining 8% preferred Reinvestment option. So while investing mainly people prefer that growth is much important than other factors.
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16. FUNDS
PREFERENCE OF INVESTORS WHETHER TO INVEST IN SECTORAL
Response Yes No
No. of Respondents 25 75
Interpretation:Out of 120 investor 75% do not prefer to invest in sectoral fund because there is maximum risk and remaining 25% of investors prefer to invest in sectoral fund.
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CROSS TABULATION ANALYSIS OF QUESTIONAIRE
Income V’s Risk Taking Profile?
What type of risk profile do you belong to? High Risk taker Which Income group do you fall in Below 2,50,000 2,50,000 – 5,00,000 Above 5,00,000 3 7 Medium Risk taker 11 36 Low Risk Taker 11 17
7
11
5
70 60 50 40 30 20 10 0 Belo 25000 2500050000 Above 50000 L R k Takers ow is MediumR k is Takers H h R k Takers ig is
As we can observe from the above analysis, most of the respondents below the income of Rs.250,000 were low risk takers, while respondents between the income of Rs.250,000 to Rs.500,000 were medium risk takers and majority of respondents above the income of Rs.500,000 were also medium risk takers.
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Age group V’s Risk Profile?
What type of risk profile do you belong to? High Risk taker Which age group do you fall in? 18 – 25 years 26 – 45 years 46 – 60 years 3 12 7 Medium Risk taker 16 20 24 Low Risk Taker 8 12 18
25 20 15 10 5 0 H h R k taker MediumR k L R k Taker ig is is ow is taker 18-25years 26-45 years 46-60 years
As we can observe from the above analysis, most of the respondents between the age of 18 years to 25 years are medium risk takers. Majority of respondents between the age of 26 years to 45 years are also medium risk takers. Respondents between the age of 46 years to 60 years are also medium risk takers which were closely followed by low risk takers.
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Income group V’s Return Expectation?
What are your general impressions of Returns associated with Mutual Fund? High Returns Which Income group do you fall in Below 2,50,000 2,50,000 – 5,00,000 Above 5,00,000 6 5 Average Returns 22 48 Low Returns 4 8
10
13
4
50 45 40 35 30 25 20 15 10 5 0
H hR ig eturn Averag R e eturn Low R eturn
Below 25000
250 00-50000
Above 50000
As we can observe from the above analysis, majority of respondents in all the income groups perceived that mutual funds have average returns.
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Income group V's Risk Associated with Mutual Fund?
What are your general impressions of Risk associated with Mutual Fund? High Risk Which Income group do you fall in Below 2,50,000 2,50,000 – 5,00,000 Above 5,00,000 17 12 Average Risk 9 45 Low Risk 4 5
6
13
9
45 40 35 30 25 20 15 10 5 0 B elow 25000 25000-50000 Above 50000 H hR k ig is Averag R k e is Low R k is
As we can observe from the above analysis, most of the respondents below the income of Rs250,000 perceived mutual funds as high risk investments. While most of the respondents in other income groups perceived mutual funds as average risk investments.
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Age group V’s Returns Expected from Mutual Fund?
What are your general impressions of Returns associated with Mutual Fund? High Returns Which age group do you fall in? 18 – 25 years 26 – 45 years 46 – 60 years 4 12 4 Average Returns 19 28 38 Low Returns 5 5 5
40 35 30 25 20 15 10 5 0 18-25 years 26-45 years 46-60 years H hR ig eturns Averag R e eturn Low R eturna
As we can observe from the above analysis, majority of respondents in all the income groups perceived that mutual funds have average returns.
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Age group V’s Risk associated with Mutual Fund
What are your general impressions of Risk associated with Mutual Fund? High Risk Which age group do you fall in? 18 – 25 years 26 – 45 years 46 – 60 years 9 8 12 Average Risk 16 25 27 Low Risk 7 10 6
3 0 2 5 2 0 1 5 1 0 5 0 1 -2 yea 8 5 rs 2 -4 yea 6 5 rs 4 -6 yea 6 0 rs H hR ig isk Avera e R g isk L R ow isk
As we can observe from the above analysis, majority of respondents in all the income groups perceived mutual funds have average risk. However in the income group of 46 years to 60 years about 30% of respondents perceived mutual funds have high risk.
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Chapter – 7 Findings, Conclusions & Recommendations
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FINDINGS
• Majority of the respondents had a saving account in the bank where they had invested lots of money followed by insurance in the second place with 19% of the investors investing in insurance and 20% investing in fixed deposits. Only 16% of the investors had invested in Mutual fund.
•
Mostly respondent’s preferred High return while they are investing their money in any source of investment let it be mutual funds, saving account, shares, debentures, gold etc. The second most preferred low risk then liquidity and the least preferred trust.
•
Out of 80 investors who had not invested in mutual funds 81% were not aware of mutual fund, 13% told there is not any specific reason for not investing in mutual fund and 6% told there is likely to be higher risk in Mutual Fund.
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Most of the investors had invested in Reliance or UTI mutual fund, ICICI prudential has also good brand position among investors, SBIMF places after ICICI prudential according to the respondents.
•
Most of the investors did not invest in other mutual funds due to less awareness about the various mutual funds that were available in the market. Second and most focused reason for not investing in other mutual funds is they were investing as per the advice of the market agents and very few were left who did not invest in other mutual funds due to less returns.
•
When asked for the future investment, the most preferred mutual fund for future investment was Reliance mutual funds followed by ICICI prudential at the second spot and SBI mutual fund followed after this two.
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•
The most preferred Portfolio was Equity, the second most was Balance (mixture of both equity and debt), and the least preferred Portfolio was Debt portfolio.
CONCLUSIONS
•
Running a successful Mutual Fund requires complete understanding of the peculiarities of the Indian Stock Market and also the awareness of the small investors. This study has made an attempt to understand the financial behavior of Mutual Fund investors in connection with the preferences of Brand (AMC), Products, and Channels etc. I observed that many of people have fear of Mutual Fund. They think their money will not be secure in Mutual Fund.
•
They need the knowledge of Mutual Fund and its related terms. They have to be made aware of what is mutual fund and how does it operates. What are its advantages and how it may lead to losses? Many of people do not have invested in mutual fund due to lack of awareness although they have money to invest. As the awareness and income is growing the number of mutual fund investors are also growing.
•
“Brand” plays important role for the investment for this small investors. People invest in those Companies where they have faith or they are well known with them. There are many AMCs in Delhi but only some are performing well due to Brand awareness. Some AMCs are not performing well although some of the schemes of them are giving good return because of not awareness about Brand. Reliance, UTI, SBIMF, ICICI Prudential etc. they are well known Brand, they are performing well and their Assets Under Management is larger than others whose Brand name are not well known like Principle, Sundaram, etc. Distribution channels are also important for the investment in mutual fund.
•
Financial Advisors are the most preferred channel for the investment in mutual fund. They can change investors’ mindset from one investment option to others. Many of investors directly invest their money through AMC because they do not have to pay
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entry load. Only those people invest directly who know well about mutual fund and its operations and those have time.
SUGGESTIONS AND RECOMMENDATIONS
• The most vital problem spotted is of ignorance. Investors should be made aware of the benefits. Nobody will invest until and unless he is fully convinced. Investors should be made to realize that ignorance is no longer bliss and what they are losing by not investing. • Mutual funds offer a lot of benefit which no other single option could offer. But most of the people are not even aware of what actually a mutual fund is? They only see it as just another investment option. So the advisors should try to change their mindsets. The advisors should target for more and more young investors. Young investors as well as persons at the height of their career would like to go for advisors due to lack of expertise and time.
•
Mutual Fund Company needs to give the training of the Individual Financial Advisors about the Fund/Scheme and its objective, because they are the main source to influence the investors.
•
Before making any investment Financial Advisors should first enquire about the risk tolerance of the investors/customers, their need and time (how long they want to invest). By considering these three things they can take the customers into consideration.
•
Younger people aged less than 35 will be a key new customer group into the future, so making greater efforts with younger customers who show some interest in investing should pay off.
•
Systematic Investment Plan (SIP) is one the innovative products launched by Assets Management companies very recently in the industry. SIP is easy for monthly salaried
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person as it provides the facility of do the investment in EMI. Though most of the prospects and potential investors are not aware about the SIP. There is a large scope for the companies to tap the salaried persons.
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Appendix I-Survey Questionnaire
DATE…..…/…….…/……. NAME……………………………………………………………………………………….. ADDRESS…………………………………………………………………………………... CONTACT NO……………………………………………………………………………… AGE: …………………………………………………………………………………………
1. What is your Educational Qualification?
Post Graduate Graduate Under Graduate Others
2. What is your Occupation?
Government Services Private Services Business Agriculture Others
3. What is your Income Range?
<=10 10-15 15-20
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20-30 >30
4. In which Instrument you usually Invest?
Saving A/c Fixed Deposits Insurance Mutual Fund Post Office (NSC) Shares/Debentures Gold/Silver Real Estate Other
5. To which Factor do you give more Weightage during an Investment?
Liquidity
Low Risk
High Return
Trust
6. Do you know about Mutual Fund and its Operation?
Yes No
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7. From where do you get Information Regarding Mutual Fund?
Advertisement Peer Group Bank Financial Advisors
8. Why do you not invest in mutual fund?
Lack of Awareness Higher Risk No Specific Reason
9. In which asset management company (AMU) do you invest?
SBIMF UTI HDFC Reliance ICICI Prudential Others
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10. What is specific reason to invest in particular a particular mutual fund?
Associated with them Better return Agents advice
11.
What is specific reason to not invest in other mutual fund?
Not Aware Less Return Agent’s Advice
12. In which mutual fund do you prefer to invest in future?
SBIMF UTI HDFC Reliance ICICI Prudential Others
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13. Which channel do you prefer to invest in mutual fund?
Financial Advisor
Bank
AMC
14. What is the mode of your investment in mutual fund?
One Time Investment
Systematic Investment Plan (SIP)
15. Which portfolio do you prefer during investing in mutual fund?
Equity Debt Balanced
16. Do you invest in Sectorial funds?
Yes No
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BIBLIOGRAPHY
Books:“Investment Management” by “B.K. Bhalla” “Portfolio and Security Analysis” by “Punithavathy Pandian” “Securities Analysis and Portfolio Management” by “V.A. Avadhani” “Mutual Funds in India” by “H. Sadhak”
Websites:
1)
www.indiamutualfunds.com
2) www.bseindia.com 3) www.moneycontrol.com 4) www.google.co.in 5) www.capitalmarket.com 6) www.indiainfoline.com 7) www.yahoofinance.com 8) www.afiindia.com 9) www.valueresearchonline.com
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