A

Synopsis
On
“Mutual fund is an investment plan”

SUBMITTED IN THE PARTIALLY FULFILLMENT OF

THE REQUIREMENT FOR THE AWARD OF MASTER OF

BUSINESS ADMINISTRATION,

RAYAT BAHRA UNIVERSITY

(2018-2020)

Submitted to. Submitted by.

Harveer singh 1803104013

UNIVERSITY OF MANAGEMENT STUDIES

RAYAT BAHRA UNIVERSITY, MOHALI

1
 CONTENTS
TOPIC.

PAGE NO.
1. Introduction
2. Needs/objective of research
3. Review literature
4. Research design methodology
5. Conclusion
6. Bibliography

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 CHAPTER I
COMPANY PROFILE

Principal pnb asset management company

Principal Mutual Fund is sponsored by Principal Financial Services Inc., USA,

and a member of Principal Financial Group Inc. USA.

Mission and philosophy

Our corporate mission and philosophy is to help businesses and people meet
their financial goals by providing quality investment and retirement solutions.

History of Principal Financial group

The Principal Financial Group is a 125-year-old diversified global conglomerate

of Financial Services Companies in the United States. As the largest provider of
401 (k) pension plans in the United States, The Principal has been participating
in the evolution of the Pension business in the United States for over 60 years.
 
Today, serving more than 15 million customers worldwide, and with Assets under
Management in excess of US$ 150 billion, the Principal Financial Group has
developed domestic pension Companies around the world including Argentina,
Brazil, Chile, Mexico, Hong Kong, Indonesia, Japan & Spain.

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Principal Mutual Funds in India

Principal Financial Group entered Indian mutual fund market in September 2000
through a 50:50 joint venture with IDBI. In October 2000, IDBI Principal Mutual
Fund pioneered an Asset Allocation Program, which it christened Future Goals
India's first life stage investment plan.

 
The Future Goals series offered unique features such as Asset Allocation and
Automatic Rebalancing and Triggers, which gave investors tremendous flexibility
in planning out their investment strategies. This and various other products and
services positioned Principal Mutual Fund firmly in the Indian mutual fund market,
as reflected by the confidence and trust shown by its 267,686 investors.
 
Evolution of Principal Pnb Asset Management Company Private Limited

Principal Pnb Asset Management Company Private Limited is the investment

manager for Principal Mutual Fund. It was the first private sector company to tie-
up with the Department of Postal Services to sell mutual funds through the postal
network. In June 2003, Principal Pnb Asset Management Company
Private Limited acquired the right to manage the schemes of SUN F&C Mutual
Fund.

In May 2004, Punjab National Bank and Vijaya Bank bought 30% and 5 %
respectively in Principal Asset Management. Today, Principal Mutual Fund
manages over Rs. 7515.69 crores (as of August 31, 2005) of assets under
management, and our product range has expanded across asset classes –
equity, debt & money market/liquid categories, meeting various investors needs,
across their life stages.

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Today, over 383168 satisfied customers have placed their confidence in Principal
Mutual Funds.  The stability of its unit holders’ base, further demonstrates this
confidence – particularly during periods of market volatility. The Fund ’s goal is to
generate consistent & sustainable returns for its investors.  To achieve this
objective, it continues to refine its skills, and practice the values that stand at the
core of its professional philosophy. The professionals responsible for managing
Principal Mutual Funds are talented, trained and experienced investment
professionals, many of whom are the best in the Industry.

Principal product

 Pension
 Asset management

 Life Insurance

 Mortgage

 Banking

The Principal offers a wide array of high-quality mutual fund investments

to help individuals achieve their long-term financial objectives. Our mutual funds
are managed by Principal Financial Group investment professionals as well as by
independent firms. It has 22 mutual funds sold in the retail market as Principal
Mutual Funds; 31 Principal Variable Contracts Fund portfolios available as
investment choices for variable annuity and variable life contracts issued by
Principal Life Insurance Company; and 53 Principal Investors Fund portfolios
available as investment choices through Principal Advantage to address the
retirement plan market.

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 Variety of schemes of principal pnb

Open-ended equity fund with an investment portfolio of stocks diversified across

different sectors of the economy.

Principal balanced Fund: Open-ended fund with an equity (diversified)

component of 70% to 75% and Debt component (including Money Market) 30%
to 49%.

Principal Income Fund: Open-ended fund with up to 100% investment in Debt

instruments (including Money Market instruments and securitized debt)

Principal Income Fund – Short Term Debt: Open-ended short term maturity
debt fund aimed at providing stable returns with lower to negligible risks. Fund
invests in debt securities, predominantly 100% money market instruments and
securitized debt.

Principal Cash management Fund: Open-ended fund that invests 100% of its
corpus in Money Market instruments and seeks to provide an excellent avenue to
park very short term cash surpluses and earn returns linked to the call money
market rates.

Principal Index Fund: Open-ended fund that tracks S&P CNX Nifty (NSE)
closely. The aim of the fund is to provide its investors returns commensurate with
the Nifty.

Principal government Securities Fund: Open-ended dedicated Gilt scheme

investing in Government Securities.

Principal junior cap fund: An open-ended equity diversified fund investing at

least 51% in the equity and equity related instruments of the companies that

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comprise the CNX Nifty Junior Index. Upto 35% will be invested in the stock of
companies with the market capitalization below 2000 crores, with the aim of
providing capital appreciation.

Principal dividend yield fund: An open-ended equity scheme investing 65% to

100% in equity and equity related instruments of high dividend yielding
companies.

Principal tax savings fund: An open-ended Equity Linked Savings Scheme

investing not less than 80% in equity and equity linked instruments and up to
20% in debt securities and money market instruments.

Principal tax saver fund: An open-ended Equity Linked Saving Scheme with
the objective of providing long term growth of capital.

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 CHAPTER II
INDUSTRY PROFILE

Concept-Mutual Fund

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

Mutual Fund Operation Flow Chart

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 Figure:-1

Origin of mutual funds

Mutual funds go back to the times of the Egyptians and Phoenicians when they
sold shares in caravans and vessels to spread the risk of these ventures. The
foreign and colonial government Trust of London of 1868 is considered to be the
fore-runner of the modern concept of mutual funds. The USA is, however,
considered to be the Mecca of modern mutual funds. By the early - 1930s quite a
large number of close - ended mutual funds were in operation in the U.S.A. Much
latter in 1954, the committee on finance for the private sector recommended
mobilization of savings of the middle class investors through unit trusts.

Finally in July 1964, the concept took root in India when Unit Trust of India
was set up with the twin objective of mobilizing household savings and investing
the funds in the capital market for industrial growth. Household sector accounted
for about 80 percent of nation’s savings and only about one third of such savings
was available to the corporate sector; it was felt that UTI could be an effective
vehicle for channelizing progressively larger shares of household savings to
productive investments in the corporate sector. The process of economic
liberalization in the eighties not only brought in dramatic changes in the
environment for Indian industries, corporate sector and the capital market but
also led to the emergence of demand for newer financial services such as issue
management, corporate counseling, capital restructuring and loan syndication.
After two decades of UTI monopoly, recently some other public sector
organizations like LIC (1989), GIC (1991 ), SBI (1987), Can Bank (1987), Indian
Bank (1990), Bank of India (1990), Punjab National Bank (1990) have been
permitted to set up mutual funds.

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 Economic Environment

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 The Reserve Bank. The
history of mutual funds in India can be broadly divided into four distinct phases:

First Phase - 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was
set up by the Reserve Bank of India and functioned under the Regulatory and
administrative control of the Reserve Bank of India. In 1978 UTI was de-linked
from the RBI and the Industrial Development Bank of India (IDBI) took over the
regulatory and administrative control in place of RBI. The first scheme launched
by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of
assets under management.

Second Phase - 1987-1993 (Entry of Public Sector Funds)

Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by
Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89),
Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda
Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked
Rs.47,004 as assets under management.

Third Phase - 1993-2003 (Entry of Private Sector Funds)

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With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund families.
Also, 1993 was the year in which the first Mutual Fund Regulations came into
being, under which all mutual funds, except UTI were to be registered and
governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton)
was the first private sector mutual fund registered in July 1993.

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.

The number of mutual fund houses went on increasing, with many foreign mutual
funds setting up funds in India and also the industry has witnessed several
mergers and acquisitions. As at the end of January 2003, there were 33 mutual
funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with
Rs.44,541 crores of assets under management was way ahead of other mutual
funds.

Fourth Phase - since February 2003

This phase had bitter experience for UTI. It was bifurcated into two separate
entities. One is the Specified Undertaking of the Unit Trust of India with AUM of
Rs.29,835 crores (as on January 2003). The Specified Undertaking of Unit Trust
of India, functioning under an administrator and under the rules framed by
Government of India and does not come under the purview of the Mutual Fund
Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It
is registered with SEBI and functions under the Mutual Fund Regulations. With
the bifurcation of the erstwhile UTI which had in March 2000 more than
Rs.76,000 crores of AUM and with the setting up of a UTI Mutual Fund,
conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking

11
place among different private sector funds, the mutual fund industry has entered
its current phase of consolidation and growth. As at the end of September, 2004,
there were 29 funds, which manage assets of Rs.153108 crores under 421
schemes.
Growth in asset under management

Figure:-2

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 Organization of mutual fund

There are many entities involved and the diagram below illustrates the
organisational set up of a mutual fund:

Figure:-3

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

13
deemed to be a sponsor and will be required to fulfill the eligibility criteria in the
Mutual Fund Regulations. The sponsor or any of its directors or the principal
officer employed by the mutual fund should not be guilty of fraud or guilty of any
economic offence.

Trustees
The mutual fund is required to have an independent Board of Trustees, i.e. two
third of the trustees should be independent persons who are not associated with
the sponsors in any manner. An AMC or any of its officers or employees are not
eligible to act as a trustee of any mutual fund. The trustees are responsible for -
inter alia – ensuring that the AMC has all its systems in place, all key personnel,
auditors, registrar etc. have been appointed prior to the launch of any scheme.

Asset Management Company

The sponsors or the trustees are required to appoint an AMC to manage the
assets of the mutual fund. Under the mutual fund regulations, the applicant must
satisfy certain eligibility criteria in order to qualify to register with SEBI as an
AMC.

1. The sponsor must have at least 40% stake in the AMC.

2. The chairman of the AMC is not a trustee of any mutual fund.
3. The AMC should have and must at all times maintain a minimum net worth
of rs. 100 million.
4. The director of the AMC should be a person having adequate professional
experience.
5. the board of directors of such AMC has at least 50% directors who are not
associate of or associated in any manner with the sponsor or any of its
subsidiaries or the trustees.

Mutual Fund
The Mutual Fund Regulations lay down several criteria that need to be fulfilled in
order to be granted registration as a mutual fund. Every mutual fund must be

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registered with SEBI and must be constituted in the form of a trust in accordance
with the provisions of the Indian Trusts Act, 1882. the instrument of trust must be
in the form of a deed between the sponsor and the trustees of the mutual fund
duly registered under the provisions of the Indian Registration Act, 1908.

The Transfer Agents

The transfer agent is contracted by the AMC and is responsible for maintaining
the register of investors / unit holders and every day settlements of purchases
and redemption of units. The role of a transfer agent is to collect data from
distributors relating to daily purchases and redemption of units.

Custodian
The mutual fund is required, under the Mutual Fund Regulations, to appoint a
custodian to carry out the custodial services for the schemes of the fund. Only
institutions with substantial organizational strength, service capability in terms of
computerization and other infrastructure facilities are approved to act as
custodians. The custodian must be totally delinked from the AMC and must be
registered with SEBI.

Unit Holders
They are the parties to whom the mutual fund is sold. They are ultimate
beneficiary of the income earned by the mutual funds.

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 Development of mutual funds

As shown in Table 1, the assets under management have increased from Rs

100,594 crore in 2001-02 to Rs 149,600 crore in 2004-05 and further to Rs
231,863 crore by the end of 2005-06. The gross mobilisations have increased
from Rs 164,523 crore to Rs 1,098,149 crore during the same period. But, what
equally stand out are the redemptions which have been equally large, so much
so that in 2004-05 despite the bullish stock market, the net inflow has been
meagre at Rs 2,200 crore with sales of Rs 839,708 crore and redemptions of Rs
837,508 crore. In 2005-06, the net inflows have jumped to Rs 52,779 crore as
some of the private sector NFOs have mobilised huge amounts.

Trends in Resource Mobilisations by Mutual Funds

(Amount in Rs crore)
Assets
at the
Period Gross Mobilisation Redemption Net Inflow
end of
period
Private Public Private Public Private Public
UTI Total UTI Total UTI Total
Sector. Sector Sector. Sector Sector. Sector
1999-
43726 3817 13698 61241 28559 4562 9150 42271 15166 -745 4548 18970 107946
2000
2000-01 75009 5535 12413 92957 65160 6580 12090 83830 9850 -1045 323 9128 90587
2001-02 147798 12082 4643 164523 134748 10673 11927 157348 13050 1409 -7284 7175 100594
2002-03 284095 23515 7096 314706 272026 21954 16530 310510 12069 1561 -9434 4196 109299
2003-04 534649 31548 23992 590189 492105 28951 22326 543382 42545 2597 1667 46808 139616
2004-05 736463 56589 46656 839708 728864 59266 49378 837508 7600 -2677 -2722 2200 149600
109814 104537
2005-06 914703 110319 73127 871727 103940 69704 42977 6379 3724 52779 231863
9 0

Source: Sebi Bulletin.

Table: 1

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 Performance of Mutual Funds in India

The performance of mutual funds in India started from the day the concept of
mutual fund took birth in India. The year was 1963. Unit Trust of India invited
investors or rather to those who believed in savings, to park their money in UTI
Mutual Fund for 30 years it goaled without a single second player. Though the
1988-year saw some new mutual fund companies, but UTI remained in a
monopoly position.

The performance of mutual funds in India in the initial phase was not even
closer to satisfactory level. People rarely understood, and of course investing
was out of question. But yes, some 24 million shareholders were accustomed
with guaranteed high returns by the beginning of liberalization of the industry in
1992. This good record of UTI became marketing tool for new entrants. The
expectations of investors touched the sky in profitability factor. However, people
were miles away from the preparedness of risks factor after the liberalization.

The Assets under Management of UTI was Rs. 67bn. by the end of 1987.
Let me concentrate about the performance of mutual funds in India through
figures. From Rs. 67bn. the Assets under Management rose to Rs. 470 bn. in
March 1993 and the figure had a three times higher performance by April 2004. It
rose as high as Rs. 1,540bn.

The net asset value (NAV) of mutual funds in India declined when stock
prices started falling in the year 1992. Those days, the market regulations did not
allow portfolio shifts into alternative investments. There was rather no choice
apart from holding the cash or to further continue investing in shares. One more
thing to be noted, since only closed-end funds were floated in the market, the
investors disinvested by selling at a loss in the secondary market.

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The performance of mutual funds in India suffered qualitatively. The 1992 stock
market scandal, the losses by disinvestments and of course the lack of
transparent rules in the whereabouts rocked confidence among the investors.
Partly owing to a relatively weak stock market performance, mutual funds have
not yet recovered, with funds trading at an average discount of 1020 percent of
their net asset value.

The supervisory authority adopted a set of measures to create a

transparent and competitive environment in mutual funds. Some of them were
like relaxing investment restrictions into the market, introduction of open-ended
funds, and paving the gateway for mutual funds to launch pension schemes.
The measure was taken to make mutual funds the key instrument for long-term
saving. The more the variety offered, the quantitative would be investors.
At last to mention, as long as mutual fund companies are performing with lower
risks and higher profitability within a short span of time, more and more people
will be inclined to invest until and unless they are fully educated with the do ’s and
don’ts of mutual funds.

Mutual Fund Companies in India

The concept of mutual funds in India dates back to the year 1963. The era
between 1963 and 1987 marked the existence of only one mutual fund Company
in India with Rs. 67bn assets under management (AUM), by the end of its
monopoly era, the Unit Trust of India (UTI). By the end of the 80s decade, few
other mutual fund companies in India took their position in mutual fund market.

The new entries of mutual fund companies in India were SBI Mutual Fund,
Canbank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual
Fund, Bank of India Mutual Fund.

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The succeeding decade showed a new horizon in Indian mutual fund industry. By
the end of 1993, the total AUM of the industry was Rs. 470.04 bn. The private
sector funds started penetrating the fund families. In the same year the first
Mutual Fund Regulations came into existence with re-registering all mutual funds
except UTI. The regulations were further given a revised shape in 1996.

Kothari Pioneer was the first private sector mutual fund company in India,
which has now merged with Franklin Templeton. Just after ten years with private
sector player’s penetration, the total assets rose up to Rs. 1218.05 bn. Today
there are 33 mutual fund companies in India.

INDIAN MAJOR PLAYERS

ABN AMRO Mutual Fund

ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee
(India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset
Management (India) Ltd. was incorporated on November 4, 2003. Deutsche
Bank A G is the custodian of ABN AMRO Mutual Fund.

Birla Sun Life Mutual Fund

Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life
Financial. Sun Life Financial is a global organization evolved in 1871 and is being
represented in Canada, the US, the Philippines, Japan, Indonesia and Bermuda
apart from India. Birla Sun Life Mutual Fund follows a conservative long-term
approach to investment.

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Bank of Baroda Mutual Fund (BOB Mutual Fund)
Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30,
1992 under the sponsorship of Bank of Baroda. BOB Asset Management
Company Limited is the AMC of BOB Mutual Fund and was incorporated on
November 5, 1992. Deutsche Bank AG is the custodian.

HDFC Mutual Fund

HDFC Mutual Fund was setup on June 30, 2000 with two sponsorers namely
Housing Development Finance Corporation Limited and Standard Life
Investments limited.

HSBC Mutual Fund

HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and
Capital Markets (India) Private Limited as the sponsor. Board of Trustees, HSBC
Mutual Fund acts as the Trustee Company of HSBC Mutual Fund.

ING Vyasya Mutual Fund

ING Vyasya Mutual Fund was setup on February 11, 1999 with the same named
Trustee Company. It is a joint venture of Vysya and ING. The AMC, ING
Investment Management (India) Pvt. Ltd. was incorporated on April 6, 1998.

Prudential ICICI Mutual Fund

The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of
the largest life insurance companies in the US of A. Prudential ICICI Mutual Fund
was setup on 13th of October 1993 with two sponsorers, Prudential Plc. and
ICICI Ltd. The Trustee Company formed is Prudential ICICI Trust Ltd. and the
AMC is Prudential ICICI Asset Management Company Limited incorporated on
22nd of June 1993.

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Sahara Mutual Fund
Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial
Corporation Ltd. as the sponsor. Sahara Asset Management Company Private
Limited incorporated on August 31, 1995 works as the AMC of Sahara Mutual
Fund.

State Bank of India Mutual Fund

State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to
launch offshore fund, the India Magnum Fund with a corpus of Rs. 225 cr.
approximately. Today it is the largest Bank sponsored Mutual Fund in India. They
have already launched 35 Schemes out of which 15 have already yielded
handsome returns to investors. State Bank of India Mutual Fund has more than
Rs. 5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs spread
over 18 schemes.

Tata Mutual Fund

Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The
sponsorers for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment
Corporation Ltd. The investment manager is Tata Asset Management Limited
and its Tata Trustee Company Pvt. Limited. Tata Asset Management Limited's is
one of the fastest in the country.

Kotak Mahindra Mutual Fund

Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of
KMBL. It is presently having more than 1,99,818 investors in its various
schemes. KMAMC started its operations in December 1998. Kotak Mahindra
Mutual Fund offers schemes catering to investors with varying risk - return
profiles. It was the first company to launch dedicated gilt scheme investing only in
governmentsecuruties.

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Unit Trust of India Mutual Fund
UTI Asset Management Company Private Limited, established in Jan 14, 2003,
manages the UTI Mutual Fund with the support of UTI Trustee Company Private
Limited. UTI Asset Management Company presently manages a corpus of over
Rs.20000 Crore. The sponsorers of UTI Mutual Fund are BOB, PNB, SBI, and
LIC. The schemes of UTI Mutual Fund are Liquid Funds, Income Funds, Asset
Management Funds, Index Funds, Equity Funds and Balance funds.

Reliance Mutual Fund

Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act,
1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital
Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as
Reliance Capital Mutual Fund, which was changed on March 11, 2004. Reliance
Mutual Fund was formed for launching of various schemes under which units are
issued to the Public with a view to contribute to the capital market and to provide
investors the opportunities to make investments in diversified securities.

Standard Chartered Mutual Fund

Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by
Standard Chartered Bank. The Trustee is Standard Chartered Trustee Company
Pvt. Ltd. Standard Chartered Asset Management Company Pvt. Ltd. is the AMC
which was incorporated with SEBI on December 20,1999.

Franklin Templeton India Mutual Fund

The group, Franklin Templeton Investments is a California (USA) based
company with a global AUM of US$ 409.2 bn. It is one of the largest financial
services groups in the world. Investors can buy or sell the Mutual Fund through
their financial advisor or through mail or through their website. They have Open
end Diversified Equity schemes, Open end Sector Equity schemes, Open end
Hybrid schemes, Open end Tax Saving schemes, Open end Income and Liquid

22
schemes, closed end Income schemes and Open end Fund of Funds schemes to
offer.
Morgan Stanley Mutual Fund India
Morgan Stanley is a worldwide financial services company and its leading in the
market in securities, investment management and credit services. Morgan
Stanley Investment Management (MISM) was established in the year 1975. It
provides customized asset management services and products to governments,
corporations, pension funds and non-profit organizations. Its services are also
extended to high net worth individuals and retail investors. In India it is known as
Morgan Stanley Investment Management Private Limited (MSIM India) and its
AMC is Morgan Stanley Mutual Fund (MSMF). This is the first close end
diversified equity scheme serving the needs of Indian retail investors focusing on
a long-term capital appreciation.

Escorts Mutual Fund

Escorts Mutual Fund was setup on April 15, 1996 with Escorts Finance Limited
as its sponsor. The Trustee Company is Escorts Investment Trust Limited. Its
AMC was incorporated on December 1, 1995 with the name Escorts Asset
Management Limited.

Alliance Capital Mutual Fund

Alliance Capital Mutual Fund was setup on December 30, 1994 with Alliance
Capital Management Corp. of Delaware (USA) as sponsorer. The Trustee is
ACAM Trust Company Pvt. Ltd. and AMC, the Alliance Capital Asset
Management India (Pvt) Ltd. with the corporate office in Mumbai.

Benchmark Mutual Fund

Benchmark Mutual Fund was setup on June 12, 2001 with Niche Financial
Services Pvt. Ltd. as the sponsorer and Benchmark Trustee Company Pvt. Ltd.
as the Trustee Company. Incorporated on October 16, 2000 and headquartered
in Mumbai, Benchmark Asset Management Company Pvt. Ltd. is the AMC.

23
Canbank Mutual Fund
Can bank Mutual Fund was setup on December 19, 1987 with Canara Bank
acting as the sponsor. Canbank Investment Management Services Ltd.
incorporated on March 2, 1993 is the AMC. The Corporate Office of the AMC is
in Mumbai

Chola Mutual Fund

Chola Mutual Fund under the sponsorship of Cholamandalam Investment &
Finance Company Ltd. was setup on January 3, 1997. Cholamandalam Trustee
Co. Ltd. is the Trustee Company and AMC is Cholamandalam AMC Limited.

LIC Mutual Fund

Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It
contributed Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was
constituted as a Trust in accordance with the provisions of the Indian Trust Act,
1882. . The Company started its business on 29th April 1994. The Trustees of
LIC Mutual Fund have appointed Jeevan Bima Sahayog Asset Management
Company Ltd as the Investment Managers for LIC Mutual Fund.

Lotus India AMC

Lotus India AMC, a joint venture between Fullerton Fund Management Group
and Sabre Capital Worldwide, announced on Monday that it has received the
regulatory approval from the Securities and Exchange Board of India, (SEBI) for
starting its mutual fund operations in India.

24
 Recent trends in mutual fund industry

The most important trend in the mutual fund industry is the aggressive expansion
of the foreign owned mutual fund companies and the decline of the companies
floated by the nationalized banks and smaller private sector players.

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

The foreign owned companies have deep pockets and have come in here with
the expectation of a long haul. They can be credited with introducing many new
practices such as new product innovation, sharp improvement in service
standards and disclosure, usage of technology, broker education and support
etc. in fact, they have forced the industry to upgrade itself and service levels of
organizations like UTI have improved dramatically in the last few years in
response to the competition provided by these.

25
 Emerging trends and innovations

The mutual fund industry has witnessed several innovations during the year. A
novel feature in the form of limited cheque writing facility has been introduced by
one of the funds. Its asset management company (AMC) through an
arrangement with a Bank, allows the unitholders to issue cheques against a
savings account with the Bank.

Each unitholder is allowed to issue cheques up to a specified limit. To enhance

service to investors, one fund has instituted a toll-free inquiry facility enabling
investors to access information about the fund without any charges.
The year also witnessed the launch of sector funds targeting sectors such as
information technology, pharmaceutical, brand value and fast moving consumer
goods. Dedicated gilt fund envisaging 100% investment in government securities
was launched making the gilt market accessible to small investors. Another
innovative product was to invest solely in dematerialised securities and exchange
of any security in dematerialised segment, instead of cash, for the units of the
scheme.

A meeting with the trustees of various mutual funds was held to get their
feedback on the recommendations of the P.K. Kaul Committee regarding the
discharge of the trustees' responsibilities of the trustees. The recommendations
of the Committee would be implemented soon.

The Committee appointed for framing the guidelines for mutual funds to invest in
overseas markets submitted its Report. The recommendations of the Committee
have been taken up for discussion with the Reserve Bank of India and the
Government for implementation.

During the year, meetings were held with the Association of Mutual Funds of
India (AMFI) periodically to discuss regulatory and operational issues. This has
helped in establishing a meaningful dialogue with the industry and taking
decisions.

26
The Standard Offer Document for filing the scheme details came into force on
April 1, 1998. Also, from this date, it became mandatory for each application form
to be accompanied by a memorandum containing key information i.e. abridged
offer document. These documents have strengthened disclosure standards in
mutual funds industry enabling investors to take informed investment decisions.

The SEBI also directed the mutual funds who had launched assured return
schemes to meet their commitments in case there were shortfalls, and as a result
sponsors of these mutual funds, who were to meet the commitment infused
additional resources to the tune of Rs 1300 crore in the funds to meet the short
fall.

TRENDS IN MARKETING OF MUTUAL FUNDS IN INDIA

The changing marketing trends in the mutual fund industry in India can be easily
linked and traced to its history of growth. The changes in marketing strategies
can be characterised by 4 stages, which have evolved along with the growth and
evolution of the industry.

Product Focus
For the first three decades of the industry, from the setting up of UTI till the entry
of private sector players, the only focus of the marketing strategy was different
product offerings. UTI and various other public sector mutual funds focused on
introducing an array of products falling in different categories. The categorisation
was primarily based on two factors: one was the way the schemes were traded
and the other through different composition of debt and equity securities in the
scheme.
By the way Schemes were traded:
>Open-ended Schemes
>Close-ended Schemes

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In an open-ended scheme there are no limits on the total size of the corpus.
Investors are permitted to enter and exit the open-ended scheme at any point of
time at a price that is linked to the net asset value (NAV).

In case of close-ended schemes, the total size of the corpus is limited by the
size of the initial offer. The entry and exit of investors is possible by only trading
on the stock exchanges. Due to liquidity constraints posed by close-ended funds,
they were soon rendered obsolete and most of the prevailing schemes today are
open-ended schemes.

By Composition of Debt and Equity in the Scheme:

 Growth Schemes
 Income Schemes
 Balanced Schemes
 Money Market Schemes
The products were also differentiated by the composition of equity and debt in
various schemes. Growth schemes invest predominantly in equities whereas
Income schemes invest only in fixed income debt securities. Balanced schemes
try to derive the benefits of both equity and debt by investing in both. Money
market schemes invest in short term liquid securities like money market
instruments so that they serve as appropriate products for investing short term
funds.
There were other niche schemes to fulfil specific needs, such as Tax Saving
Schemes, Sector Specific Schemes, Index Schemes (which are passively
invested in a benchmark Index) and so on.
In the Product Focus stage, the aim of the mutual fund companies was to
introduce a wide variety of products and due to oligopolistic competition; there
was no dearth of subscribers. The only parameter on which the selling was
based was the relative performance of the products.

28
 Distribution Focus

Product focus continued for 2-3 years even after the entry of private sector
players in 1993. Initially, the private sector companies introduced the same
products available from the pubic sector players and promised superior
performance. When they realised that they needed to differentiate on some other
parameter as well, they focused on distribution. As it was difficult and time
consuming to replicate the wide-spread distribution structure of Agents set up by
UTI, they encouraged third-party distribution companies to distribute their
products all over India. Specialist distribution companies such as Karvy, Bajaj
Capital, Integrated Enterprises etc. had emerged. Special focus was given to
investor servicing so that investors could experience superior servicing standards
from private players. Some groups such as Birla Mutual Fund even set up their
own distribution companies (Birla Distribution).
While the focus on improved distribution and investor servicing did help
the private players establish themselves against large players like UTI, it had
also resulted in a lot of problems. In the rush to gain volumes and thereby
commission incomes, the distribution companies many a time sold the wrong
product to the wrong customer. A growth product, which invests primarily in risky
instruments like equities was sold to old, retired people looking for regular,
steady income as pension. The ensuing dissatisfaction has thus paved the way
at last for the most critical area for marketing, the Customer Ownership Focus.

Customer Ownership Focus

Mutual fund companies began to segment their target customers and position
their various products based on the target segment they proposed to address.
The target segment was broadly divided into institutional segment and individual
investor segment. The institutional segment consisted of treasury departments of
Corporates, Trusts etc and suitable products such as Institutional Income

29
schemes and Money Market schemes were targeted at them. The individual
investor was in turn divided into various segments such as Young Families with
small or no children, Middle-aged People saving for retirement and Retired
People looking for steady income. Suitable products such as Growth and
Balanced schemes for young families and Income schemes for retired people
were marketed. By proper segmentation and by targeting the right product to the
right customer, Mutual Fund companies hoped to win the confidence of their
customers and 'own' them for a lifetime.

Specialised Product & Service Focus

If one observes the trends in the recent past, Companies have been taking the
above customer focus further by designing and launching specialised products
and services. As awareness levels of individual investors go up, focus is on
identifying one's investment needs depending on one's financial goals, risk taking
ability and time horizon. Investors chose companies, which help them in the
above through specialised products and services.For example, a common
financial goal is to save and invest for meeting the education needs of children. A
number of mutual funds such as Pru-ICICI Mutual Fund and UTI Mutual Fund
have launched products that are designed to serve this specific need. A similar
such need is planning for a comfortable retirement. In addition, there is a need
for specialised services that help investors assess their risk taking ability and
chose products accordingly. Some mutual fund companies are launching a new
product called 'Fund of Funds' which is a Scheme that merely invests in a
combination of other mutual fund schemes (growth schemes, income schemes
etc.), based on the investment objective and risk profile of the investor. (See Box
for the characteristics of a Fund of Funds)

30
 Bright Future for Mutual Funds Industry: Study

The size of the mutual funds industry is expected to be worth Rs. 4 lakh crores
by 2010 from its current level of over Rs. 2 lakh crores, according to a study
conducted by the Associated Chambers of Commerce and Industry of India
(Assocham).

The study says that investors in future would prefer mutual funds for their
investment destination rather than choosing to park their funds in stock markets
because of safer returns and lower degree of risk as compared to other markets.

The Assocham study has the compilation of observations made by over

210 investors across the country in which over 80 per cent have exuded
confidence that the volumes of the Indian mutual funds industry will keep
flourishing in future. In 1987, its size was Rs.1,000 crores, which went up to Rs.
4,100 crores in 1991 and subsequently touched a figure of Rs.72,000 crores in
1998. Since then this figure has kept ballooning, revealing the efficiency of
growth in the mutual fund industry.

The study says that mutual funds would be one of the major instruments
of wealth creation and wealth saving in the years to come, giving positive results.
The consistency in the performance of mutual funds has been a major factor that
has attracted many investors. The Indian mutual funds industry has been
growing at a healthy pace of 16.68 per cent for the past eight years and the trend
will move further.

The presence of intelligent investors has already made the investment

market scenario fiercely competitive, with in increased number of high-yielding
investment opportunities. The industry has also witnessed several mergers and
acquisitions.

31
 The study has revealed the futuristic nature of investors; they invest for
future security and certainty (54 per cent). However, there were some investors
who invest in order to meet their current requirements (38 per cent). In addition, it
has been clearly indicated by the respondents that investments that are long-
term are preferred more (54 per cent) over medium-term (23 per cent) and short-
term investments (23 per cent).

Some facts for the growth of mutual funds in India :-

 100% growth in the last 6 years.

 Numbers of foreign AMC’s are in the queue to enter the Indian markets
like Fidelity Investments, US based, with over US$1trillion assets under
management worldwide.

 Our saving rate is over 23%, highest in the world. Only channelizing these
savings in mutual funds sector is required.

 We have approximately 29 mutual funds, which is much less than US

having more than 800. There is a big scope for expansion.

 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds
are concentrating on the 'A' class cities. Soon they will find scope in the
growing cities.

 Mutual fund can penetrate rural like the Indian insurance industry with
simple and limited products.

 SEBI allowing the MF's to launch commodity mutual funds.

 Emphasis on better corporate governance.

 Trying to curb the late trading practices.

 Introduction of Financial Planners who can provide need based advice.

32
 The expected growth of the Indian Mutual Funds Industry by 2010

The corpus of the Indian mutual fund industry had reached Rs1, 50,537 crores in
December 2004; it still had a long way to go as it is still behind the bank deposit
figure of Rs16, 22,579 crores. The American mutual fund industry ’s corpus stood
at three times that of bank deposits and therefore the Indian mutual fund industry
had a long way to go. The total assets of all scheduled commercial banks by
end-March 2010 are estimated at Rs40, 90,000 crores. Banks assets are
expected to grow at an annual composite rate of growth of 13.4% during the rest
of the decade. In short term, mutual fund assets could fluctuate but over the
period we could see big jump in industry assets. Mutual fund assets have grown
with an annual growth rate of 9% over the last 5 years. Going by current annual
growth rate, mutual fund assets would be doubled by year 2010 but considering
the growing appetite of retail investors for investments & booming Indian
economy, we could see bigger jump in mutual fund assets.

Scope for Development of Mutual Fund Business in India

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. India has a burgeoning population of middle
class now estimated around 300 million. A typical Indian middle class family can
have liquid savings ranging from Rs.2 to Rs.10 Lacs today. Investments in Banks
are liquid and safe, but with the falling rate of interest offered by Banks on
Deposits, it is no longer attractive. At best a part can be saved in bank deposits,
but what is the other sources of investment for the common man? Mutual Fund is
the ready answer. Viewed in this sense globally India is one of the best markets
for Mutual Fund Business, so also for Insurance business. This is the reason that
foreign companies compete with one another in setting up insurance and mutual
fund business units in India. The sheer magnitude of the population of educated

33
white collar employees provides unlimited scope for development of Mutual Fund
Business in India.
The alternative to mutual fund is direct investment by the investor in
equities and bonds or corporate deposits. All investments whether in shares,
debentures or deposits involve risk: share value may go down depending upon
the performance of the company, the industry, state of capital markets and the
economy; generally, however, longer the term, lesser the risk; companies may
default in payment of interest/ principal on their debentures/bonds/deposits; the
rate of interest on an investment may fall short of the rate of inflation reducing the
purchasing power. While risk cannot be eliminated, skillful management can
minimize risk. Mutual Funds help to reduce risk through diversification and
professional management. The experience and expertise of Mutual Fund
managers in selecting fundamentally sound securities and timing their purchases
and sales, help them to build a diversified portfolio that minimizes risk and
maximizes returns.

COST STRUCTURE

Mutual fund shareholders benefit from full disclosure of mutual fund fees and
expenses. A fund’s fees and expenses are required by law to be clearly
disclosed to investors in a standardized fee table at the front of the fund ’s
prospectus. The fee table breaks out the fees and expenses shareholders can
expect to pay when purchasing fund shares and allows investors to easily
compare the cost of investing in different funds.

Shareholder Fees

The fees listed below are paid directly by an investor.

 Sales Charge. A sales charge may be attached to the purchase or sale of

mutual fund shares. This fee compensates a financial professional for his or
her services.

34
  Redemption Fee. This fee is paid to a fund to cover the costs, other than
sales costs, involved with redemption.

 Exchange Fee. This fee may be charged when an investor transfers

money from one fund to another within the same fund family.

 Annual Account Maintenance Fee. This fee may be charged by some

funds, for example, to cover the costs of providing service to low-balance
accounts.

Front-end load

A front-end load is a commission or sales charge paid when you purchase the
shares. These charges, which are used primarily to pay the brokers who sell the
funds, may not exceed 8.5%, but in practice they are rarely higher than 6%. No
load funds have any front-end sales charges.

Back end load

A back end load is a redemption, or “exit ”, fee incurred when you sell your
shares. These charges are known more formally as “contingent deferred sales
charges.”

Annual fund operating expenses

These fees and expenses reflect the normal costs of operating a fund. Unlike
shareholder fees, these expenses are not charged directly to an investor but are
deducted from fund assets before earnings are distributed to shareholders.

 Management Fee. This is a fee charged by a fund ’s investment

adviser for managing the fund’s portfolio of securities and providing
related services.
 Distribution (12b-1) Fee. This fee, if charged, is deducted from fund
assets to compensate sales professionals for providing investment advice

35
 and ongoing services to mutual fund shareholders and to pay fund
marketing and advertising expenses.

 Other Expenses. These expenses include, for example, fees paid

to a fund’s transfer agent for providing fund shareholder services, such as
toll-free phone Communications, computerized account services, website
services, record keeping, printing, and mailing.

Industry growth drivers

The Mutual Fund Industry as a whole is still in its growth stage. Given the high
propensity to save and the large Indian middle class as well as the low level of
current penetration, the mutual fund industry is potentially on a high growth path.
Some of the key challenges facing the industry include the need for:
a. A broader product range.
b. Geographical spread beyond the eight metros.
c. Investor education.
d. Providing investor oriented value added services and
e. Over a period of time building trust with a large body of investor.

The potential growth drivers for the mutual-fund industry in India are
enormous given the high savings rate, a growing savings class and very low
penetrations. The growth trajectory for the industry will be determined by its
ability to innovate and offer value added services in larger number of geographic
centers to provide customer satisfaction. Competition for servicing investor in the
industry has been increasing and some players are moving ahead of the others.
Globally it has been seen that the top ten players get the bulk of the inflows.
Since the size is very important, many players in the industry would also look to
grow through mergers and acquisitions. This will be positive for the industry, as
the stronger players will continue to introduce best global practices for an orderly
growth of the industry.

36
 Technological Environment

Mutual fund, during the last one decade brought out several innovations in their
products and is offering value added services to their investor. Some of the value
added services that are being offered are:

 Electronic fund transfer facility.

 Investment and re-purchase facility through Internet.

 Added features like accident insurance cover, mediclaim, etc.

 Holding the investment in electronic form, doing away with the traditional
form of unit certificates.

 Cheque writing facilities.

 Systematic withdrawal and deposit facility.

Technology plays a major role to have edge over other. Databases, overnight
delivery and faxes have opened the world market to not only larger
companies but small ones too. To add to this globalization, companies and even
competitors are combining and forming alliances to cut cost and increase the
profit margin. Before we can know about the role of information technology in
mutual fund industry, it is essential that we know what information technology is
exactly, and why it has it come to play such a important role in our daily lives.
Today, as more and more people begin to use portable, hand-held computers
such as laptop computers and WAP-based mobile telephones to access
information on the Internet and elsewhere, current restrictions on bandwidth,
navigation and accessibility will be lifted.

37
Our world today has changed a great deal with the aid of information technology.
Things that were once done manually or by hand have now become
computerized operating systems, which simply require a single click of a mouse
to get a task completed. With the aid of IT we are not only able to stream line our
business processes but we are also able to get constant information in ‘real time ’
that is up to the minute and up to date.
Today scenario, technology has provide gamut of ways which provide quick
online services through

1. Website
2. E-commerce
3. Internet Advertising

1. Website

Consumers search for products and services online before making purchases.
Being found on the Internet will give customer an advantage over your

competition when they call you instead of the competition. You are able to
conduct business when it is convenient for your client whether it be during the
day or in the middle of the night. You are never actually closed. If you choose an

e-commerce website, your customers can shop with you 24 hours. Consumers
can become educated about your business and get answers to many of their
questions which will help to cut back on the number of phone calls you receive

with this information on your website.. Your website can provide further support
to existing customers by offering information such as troubleshooting procedures,
product specification and parts list, how-to procedures, diagrams, and special
help lines. By having this help available 24 hours a day you will be able to

decrease the number of customer service employees you have on staff. There is
potential for your website to become a resource of information for the public. By
supplying helpful tips and articles that are relevant to your industry, you will give

38
visitors a reason to come back to your website.. Consumers have more
confidence in and prefer doing business with companies that they know
something about. Inform visitors about the structure of your company, of your
community involvement, the products and services you offer, awards, and
employment opportunities.

Role in Mutual fund Industry

As you today, every company has its own website through which any person get
any information about mutual funds of any financial institution. Like amfi website,
is good source of providing daily and currently information about NAV of every
mutual funds.Its biggest advantage is that customer can buy online mutual funds
of any financial institution by following proper instruction mention on the website.
It lead to quick transaction, liquidity and provide more safety to people by
providing quick authentic information about each mutual funds. Customer can
easily able to compare and analyze in which mutual funds they have to make
investment through number of option available on their website. Websites and
electronic communication provide businesses with competitive advantage.
Properly planned, designed and implemented a website should pay for itself and
providing a return on investment. Websites provide companies with large
customer bases the ability to communicate more effectively. A website hosted on
a reliable, commercial web server has the advantage of being available 24 hours
a day, 7 days a week. By providing detailed product information, logically
organized and well written customers are able to access information about new
products, latest price lists, special promotions. Contact details are easily
accessible and the website provides new business opportunities because people
can search for your new product and service using search engines, which index
webpages.

39
Websites can also collect customer information and allows customers to sign up
and order new products and services. The need for administration is reduced.

Targeted Mailing Lists allow businesses to keep employees, customers,

shareholders and investors up to date and maintain communication.

Environmentally friendly business, reducing the number of brochures that your

company needs to produce

 providing answers to frequently asked questions thus saving staff time

 providing a timesaving shopping experience for customers.
 accessing information about customer buying patterns and purchases thus
providing further marketing opportunities
 automated collection of orders, payments and customer details
 an on line database of products which is quick, easy and inexpensive to
modify
 improved communication by email which is professional and convenient,
and is significantly better than leaving messages on answering machines

2. Internet Advertising

The internet connects people and like any media, there is a big difference
between size of distribution and the number of people that actually read any one
advertisement. As you know whenever we go on any website, we find different
types of adveristement of different product are given on webpage so that it can
cover gamut customer and increase the awareness of particulare product. In this
ways, mutual funds also get advantage by advertising their mutual fund on
different sites and lead to growth of the mutual fund industry in India. For
instance, internet in the same way boasts millions of internet users, but most
sites receive only a handful of visitors. Enter, the search engines with their
promise of bringing visitors to your website and suddenly a huge media empire
has been born.

40
Although it is important to understand search technology and to measure website
performance, underlying every successful business is a product and a market. In
the beginning, marketing a new product was easy, all it took was a  good idea,
take out a patent, develop a product and write a simple ad and sell your product
to your local community. Now, with a flood of products and services on the
market and globalization, it is no wonder that 30% of new businesses fail in their
first year of business and it is also no surprise that many new businesses run up
losses year after year. Add into the equation, internet marketing and the mix of
gold rush fever and seemingly unlimited audience has led to a frenzy of
businesses and individuals clambering to build websites and live the online
dream.

The cold hard truth is that established businesses have a huge advantage in
internet marketing over new start up businesses. The advantages include;
existing customer bases, word of mouth referrals, capital, cash flow
and branding.

Established businesses can use internet marketing to promote products like

mutual funds and services and this can be achieved by the following means -

 natural search results - Natural search results are search results that you
do not pay for. The major search engines are Google, Yahoo and MSN
and when an internet user types in a word or words into the search bar, it
will return results. The results on the left hand side are natural search
results; the most viewed of all search results
 Paid search results - You can also pay to advertise on search engines like
Google, Yahoo and MSN. There are various methods available but the
most popular is adwords. You bid for words or phrases, and when an
internet user clicks on your ad, you pay the search engine for the traffic
that comes to your website. The ads are usually placed in the right hand
column of the search results or on information websites that have signed
up for Google AdSense.

41
  Paying for advertising on other websites - Information based websites
offer adverting on their site for a fixed sum and fixed period of time
 Free links - it is also possible to get free links from websites and you can
also link to useful websites. Linking your website is an important aspect of
internet marketing but should not be undertaken as a mindless rush to get
as many links as possible.
 Banner advertising
 Email advertising

3. E-commerce

E-Commerce isn't cutting edge anymore; it's a mainstream element of business

in the new economy. To compete effectively you need to e-enable traditional
business processes and leverage the power of the Internet. With access to
proprietary technology, focus on risk management, and advanced security,
JPMorgan can keep your business on the forefront
of the Internet revolution.

Electronic Statement Presentment (ESP) is an efficient way to deliver

electronic statements & documents to your customers and employees and helps
reduce costs while offering the convenience of viewing important information
online. We can also receive electronic responses in return using ESP. These
services are offered for both B2C and B2B markets, giving you maximum
coverage.

ESP services use push technology to enable you to electronically deliver

statements and documents via the Internet utilizing secure e-mail which contains
a link that brings your customers and employees to a secure Web site so they
can view their statements online.

42
ESP+ help in the delivery of your electronic statements of mutual fund along with
response functionality, allowing you to receive quick responses back from your
clients and employees.

Its benefits are the following:-

 Reduces printing and mailing costs

 Increases efficiencies and convenience
 Improves customer satisfaction
 Simplifies response and transaction processing
 Offers competitive advantage

Consumers enjoy added financial privacy with electronic payments as

transactions pass electronically from one financial institution to another using
encryption, electronic data scrambling, message authentication codes and other
security procedures to protect their information

Online mutual Fund Training

The innovation the industry saw was in the field of distribution to make it
more easily accessible to an ever-increasing number of investors across the
country. For the first time in India the mutual fund start using the automated
trading, clearing and settlement system of stock exchanges for sale and
repurchase of open-ended de-materialized mutual fund units.
Systematic investment plan (SIP) and systematic withdrawal plan (SWP)
were options introduced which have come in very handy for the investor to
maximize their returns from their investments. SIP ensures that there is a regular
investment that the investor makes on specified dates making his purchases to
spread out reducing the effect of the short-term volatility of markets. SWP was
designed to ensure that investors who wanted a regular income or cash flow from
their investments were able to do so with a pre-defined automated form. Today
the SW facility has come in handy for the investor to reduce their taxes.

43
 Instead of going through the hassles of filing up a repurchase request
form, sending it to the investor service centre and then waiting for cheque to be
delivered to them, all they need to do is to simply bank the Zuricheques with
them, and save on time end effort.

44
 Political and legal environment

Association of Mutual Funds in India (AMFI)

With the increase in mutual fund players in India, a need for mutual fund
association in India was generated to function as a non-profit organization.
Association of Mutual Funds in India (AMFI) was incorporated on 22nd August
1995.
AMFI is an apex body of all Asset Management Companies (AMC), which
has been registered with SEBI. Till date all the AMCs are that have launched
mutual fund schemes are its members. It functions under the supervision and
guidelines of its Board of Directors.

Association of Mutual Funds India has brought down the Indian Mutual
Fund Industry to a professional and healthy market with ethical lines enhancing
and maintaining standards. It follows the principle of both protecting and
promoting the interests of mutual funds as well as their unit holders.

The objectives of Association of Mutual Funds in India

The Association of Mutual Funds of India works with 30 registered AMCs of the
country. It has certain defined objectives which juxtaposes the guidelines of its
Board of Directors. The objectives are as follows:

 This mutual fund association of India maintains a high professional and

ethical standards in all areas of operation of the industry.

45
  It also recommends and promotes the top class business practices and
code of conduct which is followed by members and related people
engaged in the activities of mutual fund and asset management. The
agencies who are by any means connected or involved in the field of
capital markets and financial services also involved in this code of conduct
of the association.
 Association of Mutual Fund of India do represent the Government of India,
the Reserve Bank of India and other related bodies on matters relating to
the Mutual Fund Industry.
 It develops a team of well-qualified and trained Agent distributors. It
implements a programme of training and certification for all intermediaries
and other engaged in the mutual fund industry.
 AMFI undertakes all India awareness programme for investors in order to
promote proper understanding of the concept and working of mutual
funds.
 At last but not the least association of mutual fund of India also
disseminate informations on Mutual Fund Industry and undertakes studies
and research either directly or in association with other bodies.

Regulatory Bodies

The mutual fund industry in India is regulated and controlled by the following
statutes:

1. Unit Trust of India (UTI) Act, 1963

2. The Indian Trust Act, 1882

3. The Companies Act, 1956 - for trust company and the asset management
company

4. Securities and Exchange Board of India Act, 1992

46
5. Securities and Exchange Board of India (Mutual Funds) Regulations 1996 and
amendments thereto.

Securities and Exchange Board of India(SEBI)

Like Banking & Insurance up to the Nineties of the last century, Mutual Fund
industry in India was set up and functioned exclusively in the State monopoly
represented by the Unit Trust of India. This monopoly was diluted in the Eighties
by allowing Nationalized Banks, and Insurance Companies (LIC & GIC) to set up
their institutions under the Indian Trusts Act to transact mutual fund business,
allowing the Indian Investor the option to choose between different service-
providers. Unit Trust was a statutory corporation governed by its own
incorporating Act. There was no separate Regulatory Authority up to the time
SEBI was made a statutory authority in 1992. But it was only in the year 1993,
when Government took a policy decision to deregulate Indian Economy from
Government Control and to transform it market oriented, that the Industry was
opened to competition from private and foreign players. By the year 2000 there
came to be established in the market 34 Mutual funds offering a variety of about
200 schemes, mobilizing a gross investment of Rs.81000 crores.

SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL FUNDS)

REGULATIONS, 1996

The fast growing industry is regulated by the Securities and Exchange

Board of India (SEBI) since inception of SEBI as a statutory body. SEBI initially
formulated "SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUAL
FUNDS) REGULATIONS, 1993" Providing detailed procedure for establishment,
registration, constitution, management of Trustees, Asset Management
Company, about schemes/products to be designed, about investment of funds

47
collected, general obligation of MFs, about Inspection, audit etc. Based on
experience gained and feedback received from the market SEBI revised the
guidelines of 1993 and issued fresh Guidelines in 1996 titled "SECURITIES AND
EXCHANGE BOARD OF INDIA (MUTUAL FUNDS) REGULATIONS, 1996". The
said regulations as amended from time to time are in force even today.

The SEBI Mutual Fund Regulations contain ten chapters and twelve
schedules. Chapters containing material subjects relating to regulation and
conduct of business by Mutual Funds (i.e. chapters II to VII are discussed in the
subsequent pages. Chapter I relates to definition of legal terms and other
preliminary matters. Chapter VIII relates to powers of SEBI for inspection and
audit of Mutual Funds, while Chapter IX deals with "Offences &
Penalties"(Procedure for Action In Case of Default). Chapter X deals with
Miscellaneous Issues like "Saving" & "Repeal" clauses etc.

Amendment of SEBI (Mutual Funds) Regulations,1996

In exercise of the powers conferred by section 30 of the Securities and

Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the
following Regulations to further amend the Securities and Exchange Board of
India (Mutual Funds) Regulations, 1996, namely: -

1. These Regulations may be called the Securities and Exchange Board of India
(Mutual Funds) (Amendment) Regulations, 2006.

2.  They shall come into force on the date of their publication in the Official
Gazette.

3. in the Securities and Exchange Board of India (Mutual Funds) Regulations,

1996:

(i) In regulation 2 –

(a) After clause (ma) the following clauses shall be inserted, namely:-

48
“(mb) ‘gold exchange traded fund scheme’ shall mean a mutual fund scheme
that invests primarily in gold or gold related instruments;

“(mc) ‘gold related instrument’ shall mean such instrument having gold as
underlying, as may be specified by the Board from time to time;”

(b) in clause (q), after the words “including money market instruments ” and
before the semi-colon, the words “or gold or gold related instruments ” shall
be inserted;

(ii) in regulation 7, in clause (g), after the words “keep custody of the
securities”, the words “or gold and gold related instruments ” shall be inserted;

(iii) in regulation 26, after sub-regulation (1), the following proviso shall be
inserted, namely:-

“Provided that in case of a gold exchange traded fund scheme, the assets of
the scheme being gold or gold related instruments may be kept in custody of
a bank which is registered as a custodian with the Board.”

(iv) regulation 43 shall be substituted with the following, namely:-

“Investment objective

43. (1) Subject to other provisions of these regulations, a mutual fund may
invest moneys collected under any of its schemes only in –

(a) securities;

(b) money market instruments;

(c) privately placed debentures;

(d) securities debt instruments, which are either asset backed or

mortgage backed securities; or

(e) gold or gold related instruments.

(2) Any investment made under sub-regulation (1) shall be in accordance with
the investment objective of the relevant mutual fund scheme.

49
 (3) Moneys collected under any money market scheme of a mutual fund shall
be invested only in money market instruments.

(4) Moneys collected under any gold exchange traded fund scheme shall be
invested only in gold or gold related instruments, in accordance with sub-
regulation (5) of regulation 44.”

(v) in regulation 44 –

(a) after sub-regulation (1), the following proviso shall be inserted, namely:

“Provided that nothing in the Seventh Schedule shall apply to a gold

exchange traded fund scheme.”

(b) after sub-regulation (4), the following sub-regulation shall be inserted,

namely:

“(5) A gold exchange traded fund scheme shall be subject to the following
investment restrictions:

(a) the initial issue expenses in respect of any such scheme shall

not exceed six percent of the funds raised under that scheme;

(b) the funds of any such scheme shall be invested only in gold or

gold related instruments in accordance with its investment
objective, except to the extent necessary to meet the liquidity
requirements for honouring repurchases or redemptions, as
disclosed in the offer document; and

(c) pending deployment of funds in accordance with clause (b), the

mutual fund may invest such funds in short term deposits of
scheduled commercial banks.”

(vi) in regulation 52, in sub-regulation (4), in clause (b):-

(a) in sub-clause (xii), the word ‘and’ appearing at the end thereof, shall be
omitted;

(b) after sub-clause (xii), the following sub-clause shall be inserted, namely,

50
 “(xii-a) in case of a gold exchange traded fund scheme, recurring expenses
incurred towards storage and handling of gold.

Taxation of Resident Unit holders

(i) Capital Gains

Under Section 2(42A) of the ITA, a unit of a mutual fund is treated as a
long-term capital asset if the same is held for more than 12 months. Under
Section 112 of the ITA, capital gains chargeable on transfer of long-term capital
assets are subject to tax at the rate of 20%.

(ii) Dividends
Under section 194K of the ITA, a 10.5% (including surcharge of 5%) on
any income credited or paid on or after June 1, 2002 in excess of Rs. 1,000
during the financial year in case of resident unit-holders.
However, if the unit-holder submits a declaration as prescribed under
section 197A of the ITA, then no tax will be deducted from any income distributed
by the mutual fund subject to the condition that income so distributed does not
exceed the maximum income not chargeable to tax under the ITA.
In case of resident unit-holders, no tax is required to be deducted at
source from capital gains arising at the time of repurchase or redemption of units.

Taxation of Non-resident Individual Unit holders

(i) Capital Gains

Any long-term capital gains received by a non-resident individual investor
is subject to tax at the rate of 10.5% (including a surcharge of 5%), as per section
112 of the ITA. In respect of short-term capital gains, tax is required to be
deducted at source at the rate of 31.5 %( including of a surcharge of 5%).

(ii) Dividends

51
 A mutual fund is required to deduct tax at source, as per section 196A of
the ITA, at the rate of 21% (including surcharge of 5%) on any income credited or
paid on or after June 1, 2002 in case of non-resident individual unit-holders.
However, in case of non-resident unit- holders, if provisions of the Double
Taxation Avoidance Agreement (“DTAA”) are more beneficial, then the tax
deducted would be at the rate provided in the DTAA.

Union Budget 2007-08 - Impact on Mutual Funds Industry

The capital market is an important instrument for intermediating financial

resources. Recognising the strength of the Indian capital market, the
International Organisation of Securities Commissions (IOSCO) has decided to
hold its annual conference in Mumbai in April 2007. In line with measures
announced every year to strengthen the market, I propose to:

• make PAN the sole identification number for all participants in the securities
market with an alpha-numeric prefix or suffix to distinguish a particular kind of
account;

• take forward the idea of Self Regulating Organisations (SRO) for different
market participants under regulations that will be made by SEBI and, if
necessary, supported by an enabling law;

• promote the flow of investment to the infrastructure sector by permitting mutual

funds to launch and operate dedicated infrastructure funds;

• converge the different regulations that allow individuals and Indian mutual
funds to invest in overseas securities by permitting individuals to invest through
Indian mutual funds;

• allow short selling settled by delivery, and securities lending and borrowing to
facilitate delivery, by institutions;

52
• put in place an enabling mechanism to permit Indian companies to unlock a
part of their holdings in group companies for meeting their financing requirements
by issue of Exchangeable Bonds.

Socio Cultural Environment

It is possible to avoid mutual funds investing in companies with unethical

practices and still make investment gains. Some believe that unscrupulous
means are sometimes necessary for making gains in one's portfolio. It is,
however, possible to profit while using an ethical investment strategy.

Socially Responsible Mutual Funds

Socially responsible mutual funds hold stock in companies that adhere to

social, moral, religious or environmental beliefs. In addition, the management of
these funds has a shareholder activist approach, and many funds also participate
in community investment - we will talk more on these topics. To ensure the
stocks chosen have values that coincide with the fund's beliefs, companies
undergo a careful screening process.

The Careful Screening Process

Because there are so many different values and beliefs that people have,
fund managers have quite a challenge when determining the stocks that reflect
the optimal combination of values for attracting investors. The specific criteria
used when screening for stocks all depend on the values and goals of the fund.
The following kinds of issues are examined: community investment, environment,
human rights, employment, animal testing, nuclear power and services and
products such as weapons, gambling facilities, alcohol and tobacco. To be
profitable, it is hard for a fund to focus entirely on one issue.

53
Ownership is taken seriously

Shareholder activism is one of the most important issues for socially

responsible funds. They believe that shareholders of the fund have some
responsibilities of ownership in the companies in which the fund invests. This
responsibility, however small, is taken seriously. The shareholders use their
ownership rights to influence management through policy change suggestions.
This advocacy is achieved through attending shareholder meetings, filing
proposals, writing letters to management and exercising voting rights.

Since it is difficult for all shareholders to exercise their votes, voting is

achieved by proxy, and shareholders assign management to vote on their behalf.
Most socially responsible mutual funds have a strict policy to maintain
transparency in their decisions and disclose all proxy voting policies and
procedures to their shareholders.

An Investing Return from a Donation

Many socially responsible mutual funds partition a portion of their portfolio

for community investments. A common misconception is that these investments
are donations. This is not the case. These investments allow investors to give to
a community in need while making a return on their investment. Many community
investments are put towards community development banks in developing
countries or in lower-income areas and they provide funding for community
growth and development, such as housing and venture capital

54
 CHAPTER III

INTRODUCTION OF RESEARCH METHODOLOGY

Objectives of the study

My study is based on the extensive survey to “Analyze the performance of the

equity diversified open ended mid cap mutual funds. & Customers risk perception
towards mutual funds.” Following are the objectives of my study:-

Primary objectives:-

 To analyze the performance evaluation on the basis of Sharpe ’s Model.

 To analyze the performance of the equity diversified open ended mid cap
mutual funds taking BSE Mid Cap Index as base.

 To know what are the factors that affect the performance of the mutual
funds

 To know the customer’s perception towards risk.

 To know what are the factors that affect the risk perception of the
customers towards mutual funds.

Secondary objectives:-

 To know why investors invest in mutual funds.

55
  To know where different companies stand in the eyes of the investors on
the basis of ranking these companies.

 To get the overview of the mutual fund industry.

 To know how investors rank various investment options.

Scope
Scope of study was limited to only mid –cap equity diversified open ended funds
and those investor who made investment in mutual funds.

Type of Data Used

The data used for this research was the primary data and secondary data .

Procedure and Mode Of Data Collection

Secondary data was collected with the help of magazines, books, journals and
through website and primary data was collected through questionnaire and the
mode of data collection is personal field survey.

Sampling Unit and Element

Sampling unit and element for this particular study was the people of the
Chandigarh and Mohali region who has invested in mutual funds.

Sample Size
Sample size for this research is one hundred means one hundred people from
Chandigarh & Mohali had filled the questionnaire.

Sampling technique
Sampling technique used for this study was convenience Technique.

Statistical Tool Used for Data Analysis

Various statistical tools used for data analysis are:-

56
  ANOVA (Analysis of variance)
 Pie Diagrams
 Bar Graphs
 Cross Tabs
 Chi-square
While analyzing the data, SPSS software has been used.

CHAPTER: IV

PERFORMANCE EVALUATION OF MID-CAP FUND

Project Review

My study of performance evaluation of mutual fund is based on the issue that the
whether the proper managed funds which perform better in the market or who
also outperformed the certain benchmark portfolio also earn the same after the
risk adjustments. During my study I also find that the ING mid-cap fund ’s risk-
adjusted returns are significantly negative. However, some individual funds were
found to outperform the benchmarks significantly

Factors affecting mutual funds

 Expense Ratio

 Administrative costs
 Distribution fee
 Risk
 Time Horizon

57
Composite Portfolio Performance
Composite portfolio performance measures have the flexibility of combining risk
and return performance into a single value. The most commonly used composite
measures are: Treynor, Sharpe and Jensen measures. While Treynor
measures only the systematic risk summarized by beta, Sharpe concentrates on
total risk of the mutual fund.
1- Treynor’s performance index
Treynor (1965) was the first researcher developing a composite measure of
portfolio performance. He measures portfolio risk with beta, and calculates
portfolio’s market risk premium relative to its beta:

R  R 
 P f 
Treynor   

P

Where:
Ti = Treynor’s performance index
Rp = Portfolio’s actual return during a specified time period
Rf = Risk-free rate of return during the same period
βp = beta of the portfolio

2- Sharpe’s Performance index

Sharpe (1966) developed a composite index which is very similar to the Treynor
measure, the only difference being the use of standard deviation, instead of beta,
to measure the portfolio risk, in other words except it uses the total risk of the
portfolio rather than just the systematic risk:

R  R 
 P f 
Sharpe   

P

Where:
Si = Sharpe performance index

58
 σp = Portfolio standard deviation
This formula suggests that Sharpe prefers to compare portfolios to the capital
market line (CML) rather than the security market line(SML). Sharpe index,
therefore, evaluates funds performance based on both rate of return and
diversification (Sharpe 1967). For a completely diversified portfolio Treynor and
Sharpe indices would give identical rankings.
3- Jensen’s Alpha
Jensen (1968), on the other hand, writes the following formula in terms of
realized rates of return, assuming that CAPM is empirically valid:
 
Jensen    R  R   R R 
P P  f P
 M f 


Rjt = Rf + βj (Rm - Rf ) + ujt

Subtracting Rf from both side he obtains:
Rjt - Rf = βj (Rm - Rf ) + ujt

This formula says that risk premium earned on jth portfolio is equal to the
market risk premium times βj plus a random error term. In this form, one would
not expect an intercept for the regression equation, if all securities are in
equilibrium. But if certain superior portfolio managers can persistently earn
positive risk premiums on their portfolios, the error term ujt will always have a
positive value. In such a case, an intercept value which measures positive
differences from the model must be included in the equation as follows:
Rjt - Rf = αj + βj (Rm - Rf) + ujt

Analysis:

In my study, I have done the performance evaluation of UTI mutual funds,

Magnum Midcap Fund (SBI), Sundaram Bnp Paribas select Mid Cap, Birla Mid
Cap Fund HSBC Mid Cap Fund Kotak mid-cap fund & Tata mid-cap fund. My

59
study is restricted from 1st May’07 to 31st Jul’07. All these mutual funds are open
ended equity diversified with growth options. To analyse the performance of
these mutual funds, Sharpe’s Model is used because it constitute both risk free
rate and market index.

Nav of mid-cap funds & bse mid-cap index value

SUNDA
UTI MAGNU RAM BIRLA HSBC Kotak Tata BSE
MID- M MID- MID- MID- MID- Mid- Mid- MID-
CAP CAP CAP CAP CAP Cap Cap CAP
DATE FUND FUND FUND FUND FUND Fund Fund INDEX
13.839S
3-May-07 21.24 22.43 91.4637 65.6 19.561 21.056 S 5866.25
4-May-07 21.24 22.56 91.4847 65.88 19.534 21.019 13.779 5863.16
7-May-07 21.22 22.55 91.1656 65.69 19.475 20.975 13.705 5844.36
8-May-07 21.04 22.35 90.4234 65.44 19.294 20.817 13.535 5779.82
9-May-07 21.04 22.35 90.47 65.6 19.267 20.793 13.501 5792.15
10-May-
07 21.12 22.39 90.4902 65.99 19.333 20.925 13.516 5816.12
11-May-
07 21.18 22.52 90.9707 66.87 19.288 20.991 13.533 5851.27
14-May-
07 21.41 22.84 92.0742 68.04 19.579 21.147 13.714 5941.09
15-May-
07 21.62 22.88 92.2643 68.29 19.655 21.2 13.781 5955.35
16-May-
07 21.91 23.24 93.2995 69.41 19.84 21.503 13.894 6041.33
17-May-
07 21.95 23.27 93.9334 69.6 20.001 21.573 13.932 6088.79
18-May-
07 21.94 23.32 93.9443 69.68 20.023 21.614 13.867 6089.95
21-May-
07 22.05 23.54 94.929 70.59 20.198 21.75 13.998 6129.69
22-May-
07 22.08 23.52 95.0285 70.7 20.187 21.81 14.054 6144.88
23-May-
07 22 23.43 94.562 70.36 20.065 21.755 13.996 6108.84
24-May-
07 21.91 23.28 93.9341 69.87 20.13 21.697 13.919 6100.47
25-May-
07 22.03 23.31 94.3448 70.2 20.188 21.786 13.951 6143.14
28-May-
07 22.22 23.59 95.5914 71.07 20.42 21.922 14.069 6206.7
29-May-
07 22.29 23.66 95.8726 71.32 20.537 22.07 14.096 6254.51
30-May-
07 22.15 23.44 95.0277 71.03 20.493 21.968 14.036 6191.61
31-May- 22.25 23.63 95.877 71.82 20.695 22.037 14.145 6222.4

60
 07
1-Jun-07 22.35 23.93 96.497 71.76 20.866 22.217 14.255 6264.28
4-Jun-07 22.45 23.79 95.9287 71.26 20.759 22.158 14.169 6233.58
5-Jun-07 22.6 23.85 96.1429 71.6 20.864 22.301 14.202 6261.02
6-Jun-07 22.28 23.63 94.6411 71 20.649 21.973 14.088 6181.91
7-Jun-07 22.21 23.55 94.3509 70.87 20.759 22.072 14.108 6187.97
8-Jun-07 22.11 23.32 93.4311 70.52 20.738 21.871 14.112 6156.22
11-Jun-
07 21.95 23.22 93.1864 70.39 20.773 21.862 14.068 6129.48
12-Jun-
07 21.82 23.08 92.6136 69.96 20.528 21.656 13.983 6084.4
13-Jun-
07 21.83 22.94 92.4216 69.62 20.557 21.612 13.906 6065.63
14-Jun-
07 22.07 23.39 94.0192 70.45 20.915 21.991 14.087 6161.61
15-Jun-
07 22.21 23.52 94.4326 70.76 20.972 22.213 14.189 6180.92
18-Jun-
07 22.08 23.48 94.2099 70.81 20.875 22.157 14.15 6172.87
19-Jun-
07 22.22 23.76 95.2627 71.54 21.054 22.392 14.314 6244.04
20-Jun-
07 22.43 24.14 96.8745 72.75 21.275 22.689 14.511 6340.02
21-Jun-
07 22.57 24.19 97.5954 73.2 21.472 22.77 14.628 6373.76
22-Jun-
07 22.58 24.23 97.5677 72.91 21.537 22.819 14.585 6373.7
25-Jun-
07 22.63 24.32 97.5889 73.06 21.45 22.877 14.564 6384.19
26-Jun-
07 22.65 24.55 97.6636 73.25 21.573 22.944 14.574 6417.9
27-Jun-
07 22.61 24.68 97.575 73.25 21.479 23.002 14.58 6242.81
28-Jun-
07 22.74 24.96 98.192 73.73 21.595 22.99 14.565 6458
29-Jun-
07 22.79 25.17 99.4813 74.43 21.707 23.246 14.675 6257.03
2-Jul-07 22.98 25.41 100.1558 75.35 21.841 23.362 14.754 6591.35
3-Jul-07 23.18 25.59 100.687 75.85 21.953 23.555 14.844 6649
4-Jul-07 23.17 25.59 100.5864 76.59 21.966 23.67 14.861 6645.65
5-Jul-07 22.97 25.34 100.1363 76.58 21.775 23.434 14.827 6605.85
6-Jul-07 23.05 25.56 100.4168 76.81 22.036 23.523 14.911 6620.85
9-Jul-07 23.17 25.92 101.6183 77.58 22.356 23.713 15.05 6683.7
10-Jul-07 23.06 25.79 101.0246 77.09 22.239 23.714 14.957 6665.6
11-Jul-07 23.14 25.96 101.8332 77.58 22.491 23.737 14.996 6704.4
12-Jul-07 23.49 26.23 103.0063 78.72 22.774 24.179 15.15 6782.69
13-Jul-07 23.79 26.49 103.3199 79.82 22.809 24.187 15.299 6795.3
16-Jul-07 23.73 26.72 103.8273 80.7 22.845 24.34 15.377 6834.55
17-Jul-07 23.6 26.55 103.0399 80.09 22.788 24.09 15.241 6789.57
18-Jul-07 23.59 26.63 102.3211 79.94 22.773 24.085 15.191 6776.19
19-Jul-07 23.81 26.73 103.2506 80.82 23.007 24.388 15.284 6827.74
20-Jul-07 23.94 26.8 102.8076 80.54 23.05 24.279 15.309 6836.07
23-Jul-07 24.05 26.94 103.2195 80.98 23.073 24.355 15.268 6849.12
24-Jul-07 23.91 26.86 102.9929 80.78 22.89 24.193 15.325 6812.34

61
25-Jul-07 23.77 26.61 102.1349 80.09 22.728 23.952 15.189 6755.2
26-Jul-07 23.83 26.67 102.7041 80.91 22.775 24.005 15.225 6790.5
27-Jul-07 23.11 26.08 99.8701 78.69 22.257 23.437 14.883 6598.32
30-Jul-07 23 26.27 100.6747 79.16 22.231 23.499 14.946 6618.99
31-Jul-07 23.4 26.64 102.1343 80.3 22.613 23.791 15.184 6718.08

Table: 2

The result of sharpe’s model

Table on calculation of sharpe’s performance index

BANK JOINT JOINT PRIVATE

SPONSORED VENTURES - VENTURE SECTOR
PREDOMINAN S- (INDIAN)
TLY INDIAN PREDOMI
NANTLY
FOREIGN
MAGN
UTI UM SUNDAR BIRLA Kotak Tata
MID- MID- AM MID- MID- Mid- Mid-
CAP CAP CAP CAP HSBC MID- Cap Cap
FUND FUND FUND FUND CAP FUND Fund Fund
AVARAGE 15.668 27.659 17.85873 32.476 23.32251 19.688 14.983
RETURN 0992 85291 762 99 17 17
* (Rf) 6.7292 6.7292 6.7292 6.7292 6.7292 6.7292 6.7292
** (Rp) 8.9388 20.930 11.12953 25.747 16.59331 12.958 8.2539
9917 65291 762 79 97 67
STANDARD 0.8145 1.4700 4.094774 4.6848 1.159599 1.1001 0.5623
DEVIATION 3705 44777 386 62 84 72
*** Sharp’e 10.974 14.238 2.717985 5.4959 14.30952 11.778 14.677
Model = Rp / 2082 10569 551 55 9 07
Std.
Deviation
Market return 22.278 22.278 22.27872 22.278 22.27872174 22.278 22.278
72174 72174 174 72174 72174 72174

Table:3
Here:-

* Rf= Risk free rate of return which is taken T-bills of 91 days.

** Rp= Average rate of return – Risk free rate of return.
*** Sharpe’s performance index= Rp/Standard deviation

62
Interpretation

 Average return of Birla is highest as compared to all the portfolios, also its
standard deviation is highest.
 Though Birla is outperforming the market return (BSE mid cap), but
according to Sharpe’s measure Tata Mid Cap Fund is best portfolio, since
it is having highest index value and its standard deviation is also lowest.
 Magnum, Birla and Hsbc are outperforming Market index on the basis of
returns.
 None of the private sector (Indian) fund is outperforming the market index.

Conclusion

 I also conclude that though the tata mid –cap fund ’s average return is the
lowest among the all mid-cap funds but still according to sharpe it is best
portfolio and its standard deviation is lowest among the deviation of all other
mid-cap funds.
 In bank sponsored mid cap funds, the average return of the magnum mid-
cap fund is highest and also the sharpe index also prove that it is better
portfolio
 In joint ventures predominantly Indian mid –cap funds, the average return
of the Birla mid-cap fund is highest and sharpe index also suggest that it is
better portfolio.

63
  In private sector(Indian) mid-cap funds, the average return of kotak mid-
cap fund is highest but sharpe index suggest that the tata mid-cap portfolio is
best among them.

Another conclusion that we can draw from our results is that size does not
matter. The size of a fund does not affect the performance of a fund.

CHAPTER: V

CUSTOMERS RISK PERCEPTION TOWARDS MUTUAL FUNDS

Demographics

AGE

8% 5%
Less than 20
21-40
41-60
35% Above 60
52%

Figure: 4
Interpretation: - Among the respondents those invest in mutual funds 5%
belongs to less than 20 age group, 52% were from 21-40, 35% were from 41-60
and 8% respondents were from above 60 age group.

64
 OCCUPATION

11% 19%
Student
Self employed
Salaried
40% Retired
30%

Figure: 5
Interpretation: - Among the respondents those invest in mutual funds 19% were
students,30% were self employed, 40% were salaried people and 11% were
retired. So on the basis of my study we can say that mutual fund is most popular
among salaried people.

EDUCATION QUALIFICATION

17%
32%
Undergraduate
Graduate
Post graduate
29% Professional
22%

Figure: 6
Interpretation: - Among the respondents those invest in mutual funds 32% were
undergraduates, 22% were graduates, 29% were post graduates and 11% were
professional.

65
 MONTHLY INCOME

5%
23% Less than 15000
39%
15000-25000
25000-30000
35000 and above
33%

Figure: 7
Interpretation: - My study shows that among the respondents those invest in
mutual funds 39% were from less than 15000 monthly income group, 33% were
form 15000-25000, 23% were from 25000-35000 and 5% were from 35000 and
above income group.

Q.2. How experienced are you at investing in mutual funds?

 Very inexperienced  Moderately
inexperience  Moderately experienced  Very
experienced

66
 Very inexperienced
12%
27%
17% Moderately
inexperienced
Moderately
experienced
44% Very experienced

Figure: 8

Interpretation: - According to my study 12% people replied that they were very
inexperienced in investing in mutual funds, 17% were moderately inexperienced
44% were moderately experience and 27% were very experienced.

Q.3. Rank the following asset management companies on the basis of

your preference for investment. (1 - Most preferred to 10 - least preferred).

 Principal PNB mutual funds  Unit Trust of India

 Reliance mutual funds  Franklin Templeton mutual funds
 Fidelity mutual funds  SBI mutual funds
 LIC mutual funds  ICICI Prudential mutual funds
 HDFC mutual funds  Standard Chartered mutual funds

67
 8
7
6
5
Mean value 4
6.19 6.2 6.8
3 5.73
5.14 5.18
2 3.78 3.82 4.4 4.35
1
0
PRINCI UTI RELIA FRANK FIDELI SBI LIC ICICI HDFC STAND
Companies name

Figure: 9

Name of the bank Sum Mean

Principal 514 5.14
Uti 518 5.18
Reliance 378 3.78
Franklin 573 5.73
Fidelity 619 6.19
Sbi 382 3.82
Lic 440 4.40
Icici 435 4.35
Hdfc 620 6.20
Standard 680 6.80
Table: 4

Interpretation:-
We can infer that, Reliance mutual fund is the most preferred mutual fund
company where the investor would like to invest their funds, based on various
factors, followed by SBI and ICICI Prudential.

Q.4. How do you expect your current income to change over the next 10
years?
 Decrease dramatically  Decrease slightly
 Remain about the same  Increase with pace of
inflation  Increase dramatically

68
 Decrease
dramatically
20% 6% 9% Decrease slightly

Remain about the

same
30%
Increase with pace of
35%
inflation
Increase dramatically

Figure: 10

Interpretation: -
From above figure we can judge the people expectation over near future about
their income change 6% respondents replied that they expect that their income
will decrease dramatically 9% expect that it will decreased slightly, 30% expect
that it will remain the same, 35% expect to increase it with the pace of inflation
and 20% expect to increase it dramatically

Q.5. You invest in Mutual funds because it provides : - (You can tick more
than one option)
 Tax benefits  Expert management of funds
 Risk diversification  Liquidity
 High returns  Capital
appreciation

69
 80
70
60
50
40 74
30 57
20 38 36
10 26
14
0

fits gt rs
e
di
ty
rn
s
pr
e
e t M e ui tu p
n er iv re la
be p D liq h t a
k i
Ta
x Ex is ig ap
R H C

Figure: 11

Reasons for investment in Sum

mutual funds
1. Tax benefits 57

2. Expert mgmt of funds 38

3. Risk diversification 36

4. Liquidity 14
5. High return 74
6. Capital appreciation 26

Table: 5

Interpretation: -
By analyzing the data gathered from 100 respondents, we can say that high
returns is the most common factor because of which people want to invest in
mutual funds followed by the tax benefits which they avail by investing in mutual
funds.
Q.6. In which type of mutual fund you generally invest? (Tick only one
option)
 Aggressive growth fund  Growth fund
 Index fund  Balanced fund
 Gilt fund  Money market mutual fund

70
 10% 16%
12% Aggressive grow th
Grow th
Index
Balanced
Gilt
29%
23% MMMF
10%

Figure: 12

Interpretation: -
From above figure we can judge that the most of the investors liked to balanced
fund. The 16% replied to invest in aggressive funds, 29% in growth fund, 10% in
index funds, 23% in balanced funds, 12% in gilt funds, and 10% in money market
mutual funds.

Q.7. What is your investment priority?

 Increasing returns
 Primarily increasing returns while also
reducing risk  Primarily reducing risk while also
increasing returns  Reducing risk

71
 Increasing returns

15% Primarily increasing

42% returns while also
17% reducing risk
Primarily reducing
risk while also
26% increasing returns
Reducing risk

Figure: 13

Interpretation
42% replied that their investment prority will be increasing returns, 26% relied
that primarily increasing returns while also reducing risk, 17% replied primarily
reducing risk while also increasing returns and 15% replied that it will be reducing
risk. Hence we can conclude that the increasing return is most important criteria
for investors for investing and they are readt to take chances for getting higher
returns.

Q.8. Rank the following investment options according to your preference.

(1- most preferred to 7- least preferred). (Please do rank all the options)
 Mutual Funds  Bank deposits
 Insurance  Real estate
 IPO  Direct Stock Trading

72
 4.5
4
3.5
3
2.5
2 3.96 3.9 3.74
1.5 2.9 2.93
1 2.41
0.5
0

IPO
deposits
Mutual

trading
Insurance

estate

Direct
Real

sock
fund

Bank

Figure: 14
Investment Sum Mean
options
1. Mutual fund 241 2.41
2. Bank 290 2.90
deposits
3. Insurance 293 2.93
4. Real estate 396 3.96
5. Ipo 390 3.90
6. Direct stock 374 3.74
trading

Table: 6
Interpretation:-
From the above chart we can infer that, mutual fund is the most preferred
investment option where the investors would like to invest their funds, based on
various factors followed by bank deposits and insurance.

Q.9. If you could increase your chances of having more money set aside
at retirement by taking on more investment risk, would you?
 Take on much more risk with all your investments.
 Take on a little more risk with all your
investment.  Take on a little more risk with some of
your investment.  Leave your investments unchanged.

73
 12% 15% Much m ore risk w ith all your
investm ents
Little m ore risk w ith all your
investm ent
Little m ore risk w ith some of
28% your investm ent
45%
Leave your investm ents
unchanged

Figure: 15

Interpretation
As per my study the 15% respondents were ready to take much more risk with all
the investment, 28% were ready to take little more risk with all investment, 45%
ready to take little more risk with some of investment & 12% replied that they
leave their investment unchanged if they increase their chances of having more
money set aside at retirement by taking on more investment risk.

Q.10. Which one of these statements would best describe your attitude if
the value of your investments declined by 15% in 3 months? I would be:-
 Very concerned  Quite concerned
 Slightly concerned  Not concerned

74
 9%

42% Very concerned

Quite concerned
Slightly concerned
37%
Not concerned

12%

Figure: 16

Interpretation
42% respondents replied that they would be very concerned if value of their
investment will declined by 15% in next three months, 12% replied quite
concerned, 37% replied slightly concerned and 9% replied that they will not be
concerned if such thing happened.

Q.11. The following statements are regarding mutual funds. Kindly indicate
your degree of agreement with each, using this scale. Here; -
SD= Strongly Disagree D= Disagree CS= Can’t Say
A= Agree SA= Strongly Agree

SD D CS A SA
I prefer mutual funds over individual stocks and
bonds.
I feel comfortable with aggressive growth

75
investments.
I don’t feel pessimistic over bad investment
decisions I have made.
I receive reasonable returns on the money
invested in mutual funds.
I feel that my money is safe in mutual funds.

Statement: 1 I prefer mutual funds over individual stocks and bonds.

50

40

30

20

10
Std. Dev = 1.41
Mean = 2.5

0 N = 100.00
1.0 2.0 3.0 4.0 5.0

preference of mutual fund

Figure: 17
Interpretation: - Most of the people replied that they prefer mutual fund over the
individual stock and bonds its shows that people are interested in investment in
mutual fund.

Statement: 2. I feel comfortable with aggressive growth investments.

76
 40

30

20

10

Std. Dev = 1.18

Mean = 2.3
0 N = 100.00
1.0 2.0 3.0 4.0 5.0

comfortable with aggressive investment

Figure: 18
Interpretation: Most of the people replied that yes they are comfortable with the
aggressive growth investment.

Statement: 3 I don’t feel pessimistic over bad investment decisions I have

made.
40

30

20

10

Std. Dev = 1.22

Mean = 3.4
0 N = 100.00
1.0 2.0 3.0 4.0 5.0

don’t pessimistic over bad decision

Figure: 19
Interpretation: From histogram we can conclude that respondents are not
agreed with the statement and they have the over the bad investment decision
they made.

77
Statement: 4 I receive reasonable returns on the money invested in mutual
funds.
70

60

50

40

30

20

10 Std. Dev = .87

Mean = 2.2
0 N = 100.00
1.0 2.0 3.0 4.0

reasonable return on MF

Figure: 20
Interpretation: - Study shows that most of the respondents were agreed with the
statement that mutual fund provide reasonable returns of money.

Statement: 5 I feel that my money is safe in mutual funds.

50

40

30

20

10
Std. Dev = 1.15
Mean = 2.6
0 N = 100.00
1.0 2.0 3.0 4.0 5.0

safety of money in MF

Figure: 21
Interpretation: - Most of the Respondents feels that the investment in mutual
fund is safe.

78
 CROSS TABULATION ON AGE AND MONTHLY INCOME

30
24 less than
25
15000
20 17
INCOME

14 15000-
15 12
9 25000
10 65
3 4 25000-
5 2 22 35000
0 0 0 0
0 35000 and
Less than 21-40 41-60 Above 60 above
20
AGE

Figure: 22

Interpretation

 In age group of less than 20, 2 belong from the less than 15000 income
group and 3 belong from 25000-35000 income group.

 In age group of 21-40, 24 had an monthly income less than 15000, 17 had
an annual income between 15000-25000, 6 had a annual income between
25000-35000 and 5 had an annual income above 35000

 In age group of 41-60, 9 had an monthly income less than 15000, 14 had
an annual income between 15000-25000 & 12 had a annual income
between 25000-35000.

 In age group of 35000 and above 4 had an monthly income less than
15000, 2 had an annual income between 15000-25000 & 2 had a annual
income between 25000-35000.

79
 BELOW ONE WAY ANOVA HAS BEEN APPLIED WITH THE HELP OF
ANNUAL INCOME

Sum of df Mean F Sig.

Squares Square
preference Between 29.226 3 9.742 5.580 .001
Groups
of mutual
fund
Within 167.614 96 1.746
Groups
Total 196.840 99
comfortable Between 20.086 3 6.695 5.446 .002
Groups
with
aggressive
investment
Within 118.024 96 1.229
Groups
Total 138.110 99
don’t Between 34.639 3 11.546 9.922 .000
Groups
pessimistic
over bad
decision
Within 111.721 96 1.164
Groups
Total 146.360 99
reasonable Between 4.406 3 1.469 1.985 .121
return on MF Groups
Within 71.034 96 .740
Groups
Total 75.440 99
safety of Between 31.506 3 10.502 10.076 .000
Groups
money in
MF
Within 100.054 96 1.042
Groups
Total 131.560 99

Table: 7

80
 Descriptive: - Annual Income

N Mean
preference of mutual fund less than 39 2.31
15000
15000-25000 33 2.36
25000-35000 23 2.70
35000 and 5 4.80
above
Total 100 2.54
comfortable with less than 39 2.67
aggressive investment 15000
15000-25000 33 1.94
25000-35000 23 2.61
35000 and 5 1.00
above
Total 100 2.33
don’t pessimistic over bad less than 39 4.03
decision 15000
15000-25000 33 3.15
25000-35000 23 3.17
35000 and 5 1.60
above
Total 100 3.42
reasonable return on MF less than 39 2.31
15000
15000-25000 33 1.97
25000-35000 23 2.04
35000 and 5 2.80
above
Total 100 2.16
safety of money in MF less than 39 2.72
15000
15000-25000 33 2.00
25000-35000 23 2.96
35000 and 5 4.40
above
Total 100 2.62
Table: 7

81
Interpretation

Mean value is significant at .05 levels. We have significant value for the
statements given in the ANOVA table in bold. Thus from the mean values in the
Descriptive table, we have: -

 The maximum value for people having an monthly income of less than
15000, its means that people of this income group is agree with the
statement that they prefer mutual funds over individual stocks and bonds.

 The maximum value for people having an monthly income of less than
15000, its means that people of this income group is agree with the
statement that they feel comfortable with aggressive growth investments
its means that they would like to take more risk.

82
 Facts / finding and observations

1. 44% of the respondents had a moderate experience at investing in

mutual fund.

2. Respondents ranked the reliance AMC as the number one followed by

the SBI & ICICI.

3. 35% of the people think that their income will increase with the pace of
the inflation.

4. People invest in mutual fund because they preferred the high return
most followed by the tax benefits.

5. With the most preference 23% respondents preferred to invest their

money in balanced fund.

6. 42% people replied that their investment priority would be the

increasing returns.

7. Mutual fund was the most preferred investment followed by the bank
deposits and insurance among the investors.

8. 45% respondents said that they will take the little more risk with some of
their investment if they have a chance of having more money set aside at
retirement by taking on more risk on investments.

9. 42% people replied that they will be concerned if their investment value
decreased by 15% in 3 months.

10. Most of the people were agreed with the statement that they are
comfortable with the aggressive growth investment.

83
11. People having an monthly income of less than 15000, its means that
people of this income group is agree with the statement that they prefer
mutual funds over individual stocks and bonds.

12. People having an monthly income of less than 15000, its means that
people of this income group is agree with the statement that they feel
comfortable with aggressive growth investments its means that they would
like to take more risk.

84
 Conclusion

1. Growing Industry: The Indian mutual fund industry is beginning to blossom

and with the recent relaxations it is evident that the industry will rise to the
international standard. India as a country holds great potential, and the rise in
income and savings levels signify the tremendous growth opportunity that lies
ahead. The very presence of most significant international player in India
demonstrates that they cannot afford to ignore the Indian market if they want
to maintain their positions internationally.
2. Satisfied Customers: The purpose of the study was to know the risk
perception of the customers towards mutual funs. It is found that the
customers are satisfied in investing at mutual funds. And they preferred
mutual funds over individual stock and bonds. Many are willing to invest more
money in mutual funds because they believe that mutual funds give them high
returns than any other source of investment. Most of the investors invest in
mutual funds because it is a source of tax savings.
3. Innovative Schemes: Schemes like Systematic investment plan (SIP)
provide opportunity to those investors also, who cannot invest in lump sum
amount.

85
 Suggestion and recommendations

1. There should be adequate efforts to advertise their mutual fund schemes by

proper media, so that more and more people are made aware of mutual
fund providing companies and their schemes.

2. All kinds of expenses incurred to encourage sales, such as commuting

expenses, telephone expenses, stationary etc., should be provided for by
The agents and others promoting the mutual funds should be provided
adequate training at the time of selection as well as refresher training.

3. The companies should provide extra incentives to those who show excellent
performance, to motivate them to work harder.

4. The companies well in time to the people promoting the mutual funds.

5. The companies should expand their functioning to small cities or towns.

Limitations of the study

86
1. Limited Scope: The scope of the study was limited to Chandigarh,
Panchkula and Mohali only because of limited time and financial
resources. So results of the study may not be generalized to India as a
whole.

2. Limited Time: The foremost limitation was the time. Time was not
sufficient for an in-depth study of the given topic.

3. Biasness: Biasness on the part of respondents cannot be ignored.

4. Difficulty in fetching data: It was not an easy task to fetch information

from the respondents, as some of the respondents were not as open and
forthcoming as the others.

Respondent No: -_______

QUESTIONNAIRE

87
Hi, I am "SANDEEP KUMAR" student of Centre for Management Training &
Research, Kharar. As a part of my MBA curriculum, I am conducting a research
survey on “Fund Evaluation and Customer Risk Perception towards Mutual
Funds” in Chandigarh and Mohali region. Please help me while filling up this
questionnaire and providing me the required information. The information
provided by you will be kept confidential and would be used only for the
academic purpose.

Q.1. Do you invest in mutual funds?

 Yes  No

Q.2. How experienced are you at investing in mutual funds?

 Very inexperienced  Moderately
inexperience  Moderately experienced  Very experienced

Q.3. Rank the following asset management companies on the basis of your
preference for investment. (1 - Most preferred to 10 - least preferred).
 Principal PNB mutual funds  Unit Trust of India
 Reliance mutual funds  Franklin Templeton mutual funds
 Fidelity mutual funds  SBI mutual funds
 LIC mutual funds  ICICI Prudential mutual funds
 HDFC mutual funds  Standard Chartered mutual funds

Q.4. How do you expect your current income to change over the next 10
years?
 Decrease dramatically  Decrease slightly
 Remain about the same  Increase with pace of
inflation  Increase dramatically

Q.5. You invest in Mutual funds because it provides : - (You can tick more than
one option)
 Tax benefits  Expert management of funds
 Risk diversification  Liquidity
 High returns  Capital
appreciation

Q.6. In which type of mutual fund you generally invest? (Tick only one option)
 Aggressive growth fund  Growth fund
 Index fund  Balanced fund
 Gilt fund  Money market
mutual fund

88
Q.7. What is your investment priority?
 Increasing returns
 Primarily increasing returns while also reducing risk
 Primarily reducing risk while also increasing
returns  Reducing risk
Q.8. Rank the following investment options according to your preference. (1-
most preferred to 7- least preferred). (Please do rank all the options)
 Mutual Funds  Bank deposits
 Insurance  Real estate
 IPO  Direct Stock Trading

Q.9. If you could increase your chances of having more money set aside at
retirement by taking on more investment risk, would you?
 Take on much more risk with all your investments.
 Take on a little more risk with all your investment.
 Take on a little more risk with some of your
investment.  Leave your investments unchanged.
Q.10. Which one of these statements would best describe your attitude if the
value of your investments declined by 15% in 3 months? I would be:-
 Very concerned  Quite concerned
 Slightly concerned  Not concerned
Q.11. The following statements are regarding mutual funds. Kindly indicate your
degree of agreement with each, using this scale. Here; -
SD= Strongly Disagree D= Disagree CS= Can’t Say
A= Agree SA= Strongly Agree
SD D CS A SA
I prefer mutual funds over individual stocks and bonds.
I feel comfortable with aggressive growth investments.
I don’t feel pessimistic over bad investment decisions I
have made.
I receive reasonable returns on the money invested in
mutual funds.
I feel that my money is safe in mutual funds.

PERSONAL DETAILS:
Name: _______________________
Gender:  Male  Female
Age (Yrs):  Less than 20  21-40
 41-60  Above 60
Occupation:  Student  Self-employed
 Salaried  Retired
Education qualification:  Under graduate  Graduate
 Post graduate  Professional
Monthly income:  Less than 15000 15000-25000
(From all sources)  25000-35000  35000 and above

89
 Bibliography

 www.investorsguide.com
 www.moneycontrol.com
 www.amfiindia.com
 www.google.com
 www.myiris.com
 www.principalindia.com
 www.investorsguide.com
 www.moneycontrol.com

90