“STUDY OF INVESTORS PERCEPTION TOWARDS

MUTUAL FUNDS IN MUMBAI”

A Project Submitted to

University of Mumbai for partial completion of the degree of

Bachelor in Commerce (Accounting and Finance)

Under the Faculty of Commerce

By

Aklesh Gupta

Under the Guidance of

Prof. S. Kaleeshwari Nadar

GURU NANAK COLLEGE OF ARTS SCIENCE AND COMMERCE

GTB NAGAR, SION, MUMBAI 400037

April 2019
 “STUDY OF INVESTORS PERCEPTION TOWARDS
MUTUAL FUNDS IN MUMBAI”

A Project Submitted to

University of Mumbai for partial completion of the degree of

Bachelor in Commerce (Accounting and Finance)

Under the Faculty of Commerce

By

Aklesh Gupta

Under the Guidance of

Prof. S. Kaleeshwari Nadar

GURU NANAK COLLEGE OF ARTS SCIENCE AND COMMERCE

GTB NAGAR, SION, MUMBAI 400037

April 2019
 Acknowledgment

To list who all have helped me is difficult because they are so numerous and the depth is so
enormous.

I would like to acknowledge the following as being idealistic channels and fresh dimensions
in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me chance to do this
project.

I would like to thank my Principal, Dr. Pushpinder Bhatia for providing the necessary
facilities required for completion of this project.

I take this opportunity to thank our Coordinator S. Kaleeshwari Nadar for her moral
support and guidance.

I would also like to express my sincere gratitude towards my project guide

S. Kaleeshwari Nadar whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference books and
magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped me in
the completion of the project especially my Parents and Peers who supported me
throughout my project.
 Declaration by learner

I the undersigned Mr.Aklesh Gupta here by, declare that the work embodied in this project

work titled “STUDY OF INVESTORS PERCEPTION TOWARDS MUTUAL

FUNDS IN MUMBAI”, forms my own contribution to the research work carried out under
the guidance of S. Kaleeshwari Nadar is a result of my own research work and has not
been previously submitted to any other University for any other Degree/ Diploma to this or
any other University.

Wherever reference has been made to previous works of others, it has been clearly indicated
as such and included in the bibliography.

I, here by further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.

Aklesh gupta

S. Kaleeshwari Nadar
 Certificate

This is to certify that Mr Aklesh Gupta has worked and duly completed his Project Work for
the degree of Bachelor in Commerce (Accounting & Finance) under the Faculty of
Commerce in the subject of Financial Management and his project is entitled “STUDY OF
INVESTORS PERCEPTION TOWARDS MUTUAL FUNDS IN MUMBAI” under
My supervision.

I further certify that the entire work has been done by the learner under my guidance and
that no part of it has been submitted previously for any Degree or Diploma of any
University.

It is his own work and facts reported by his personal findings and investigations.

S. Kaleeshwari Nadar

Date of submission:
 INDEX
Sr. No. Title of the Chapter Page no.
Chapter No.1 Introduction 1
1.1 Basic terminologies in mutual funds 5
1.2 History of mutual fund in India 9
1.3 Concept of mutual fund 13
1.4 Classification of mutual fund 14
1.5 Advantage and disadvantage of mutual fund 20
1.6 Important Factors to Consider Before Choosing Mutual 26
Fund
1.7
1 . Difference between equity and mutual fund 28
1.8 Systematic methods of mutual funds 30
1.9 Investment procedures in mutual funds 35
1.10 Rights and duties of investors 37
1.11 Who can invest in mutual funds 39
1.12 Risk involved in mutual funds 41
1.13 Role of SEBI and AMFI In mutual fund industry 43
Chapter No. 2 Research And Methodology 46
2.1 Objective 47
2.2 Scope of the study 48
2.3 Limitations of the Study 49
2.4 Sources of Data 50
Chapter No. 3 Literature Review 51
Chapter No. 4 Data Analysis, Interpretation and Presentation 55
Chapter No. 5
5.1 Finding 73
5.2 Conclusion 74
5.3 Suggestions 75
5.4 Bibliography 76
Annexure 77
 Chapter no. 1
1. Introduction

1.1 Basic terminologies in mutual funds

1.2 History of mutual fund in India
1.3 Concept of mutual fund
1.4 Classification of mutual fund
1.5 Advantage and disadvantage of mutual fund
1.6 Important Factors to Consider Before
Choosing Mutual Fund
1.7 Difference between equity and mutual fund
1.8 Systematic methods of mutual funds
1.9 Investment procedures in mutual funds
1.10 Rights and duties of investors
1.11 Who can invest in mutual funds
1.12 Risk involved in mutual funds
1.13 Role of SEBI and AMFI In mutual fund
industry

1
 1. Introduction
Investment can be defined as an item of value purchased for income all special appreciation.
Investment is made to achieve specific objective and saving. I made to meet and unforeseen
event. There are various avenues of investment in accordance with individual preference.
Investments are made in different asset classes depending on an individual's risk and return
characteristics, investment choice or physical asset, financial asset. Gold and real estate are
example of physical assets which have a physical form to them. There is a strong preference
for this asset as this asset can be purchased with cash and held for a long term. The obvious
a disadvantage with physical assets are the risks of loss and theft, lower level of returns,
illiquid secondary market and valuation and transactions.

Financial asset are securities which are certificate embodying financial contact between
parties bones equity share deposit and insurance policies are some of the example of
financial asset. In financial asset investors only hold the proof of their investment in the
form of certificate or accounts these products are usually liquid transferable and in most
cases stored electronically with high degree of safety but a minimum amount of cash is
always kept in hands of transactions and contingencies to face the continents is an
unexpected events the insurance can into existence another avenue of investment in mutual
funds.

It is created when investors put their money together it is there for a pool of investors funds
the most important characteristic of the mutual fund is that the contributions and the
beneficiaries of the fund are the same class of people namely the investors the term mutual
means that investors contribute to the pool and also benefit from the pole there are no other
elements to the funds the full of funds held mutually by investors is the mutual fund.

A mutual fund pulls the money of people with similar investment goals the money in turn is
invested in various securities depending on the objective of the mutual fund scheme, and the
profit or loss a shared among investors in proportion to their Investments. Mutual funds
schemes are usually open ended (perpetually open for investment and redemption) are
closed end (with a fixed term) a mutual fund scheme issues units that are normally priced
Rs. 10 during the initial offer. Thus, the number of units you own as against the total number

2
of units issued by the mutual fund schemes determined you share in the profit or loss of a
scheme in case of open-end schemes units can be purchased from or sold back to the fund at
a net asset value (NAV) best price on all business days the NAV is the actual value of a unit
of the fund on the given by the day. Thus, when you invest in a mutual fund scheme you
normally get an account statement mentioning the number of unit that have been allotted to
you and the NAV best price at which the units have been alerted. the account statement is
similar to you bank statement Mutual fund is a mechanism for pooling the resources by
issuing units to the investors and investing funds in securities in accordance with objectives
as disclosed in offer document. A mutual fund is an investment vehicle for investors who
pool their savings for investing in diversified portfolio of securities with the aim of attractive
yields and appreciation in their value.

Investments in securities are spread across a wide cross-section of industries and sectors and
thus the risk is reduced .Mutual funds issues units to the investors in accordance with
quantum of money invested by them. Investors of mutual funds are known as unit-holders.
The profit or losses are shared by the investors
in proportion to their investments. The mutual funds normally come out with anumber of
schemes with different investment objectives, which are launched from time to time.
A mutual fund is required to be registered with securities and exchange board of India.

3
 Mutual funds invest basically in three types of asset
classes:

 Stocks:

Stock represents ownership or equity in company popularly known as shares.

 Bonds:

These represented from companies financial institutions all government agencies.

 Money market instruments:

This includes short term debt instruments such as treasury bills, certificate of deposit and
interbank call money. Mutual Funds business is to invest the fund does collected according
to the wishes of investor who created the pool. In many markets these wishes are articulated
as a investment mandates. Analysis of the perception of investor towards mutual fund is
done in this project. Even what factor the investor look before investing can also be
observed.

 AMC

An Asset Management Company is the fund house or the company that manages the money.
Mutual fund is a trust registered under the Indian Trust Act. It is initiated by a sponsor. A
sponsor is a person who acts alone or with a corporate to establish a mutual fund. The
sponsor then appoints an AMC to manage the investment, marketing, accounting and other
functions pertaining to the fund.

For instance, ABN AMRO Trustee (India) Private Limited is appointed as the trustee to the
ABN AMRO mutual fund.ABN AMRO Asset Management (India) Limited is appointed as
its investment manager. Various funds with different objectives can be floated under the
umbrella of one parent. So ABN AMRO Equity Fund, ABN AMRO Opportunities Fund and
ABN AMRO Flexi Debt Fund are all independent schemes of ABN AMRO Mutual Fund.
They are managed by the ABN AMRO AMC.

4
 1.1 Basic terminologies in mutual funds

 NAV

The Net Asset Value is the price of a unit of a fund. When a fund comes out with an NFO, it
is priced Rs 10. Later, depending on the value of the investments, this price could rise or
fall.

 Load

This is a fee that is charged when you buy or sell the units of a fund. When you buy the units
of a fund, you pay a percentage of it as a fee. This is known as the entry load.

Let's say you are investing Rs 10,000 and the entry load is 2%. That means you pay Rs 200
as the entry load and Rs 9,800 is invested in the fund.

Now, let's assume you are selling the units of your fund. And the Rs 10,000 you invested
initially is now Rs 15,000. Let's further assume the exit load is 2%. So you pay Rs 300 and
get back Rs 14,700.

Generally, if funds charge an entry load, they will not charge an exit load. Or vice versa.
Only one of the loads is charged. The load is a percentage of the NAV.

 Portfolio

This is the term given to all the investments made by the fund as well as the amount held in
cash.

 Corpus

Let's assume a very small mutual fund has an initial investment of 1,000 units and each unit
is worth Rs 10. Hence, the total amount with the fund is Rs 10,000. This is referred to as the
corpus. Later, some other investors invest Rs 2,000. Now the corpus will be Rs 12,000 (Rs
10,000 + Rs 2,000).

The total amount invested (Rs 12,000) is called the corpus or the total amount of money
invested in the fund.

5
  Assets Under Management

Assets under Management are the total value of all the investments currently being managed
by the fund.

Let's say the corpus is Rs 12,000 but, due to a rise in the price of the shares it has invested
in, the value of the units has increased. So the Rs 12,000 invested is now worth Rs 15,000.
This figure is referred to as AUM.

 Diversified equity mutual fund

This is a mutual fund that invests in stocks of various companies in various sectors.

 ELSS

Equity Linked Saving Schemes are diversified equity mutual funds with a tax benefit under
Section 80C of the Income Tax Act.

To avail of the tax benefit, your money must be locked up for at least three years.

 Balanced fund

A fund that invests in both equity (shares) and debt (fixed return investments) is known as a
balanced fund.

 Debt fund

These are funds that invest in fixed return investments like bonds. A liquid fund is one that
invests in money market instruments, these are fixed return investments of a very short
tenure.

 NFO

A New Fund Offering is the term given to a new mutual fund scheme.

6
  SIP

A Systematic Investment Plan refers to periodic investing in a mutual fund. Every month or
every three months, the investor will have to commit to putting in a fixed amount. This will
go towards the purchase of units.

Let's say that every month you commit to investing, say, Rs 1,000 in your fund. At the end
of a year, you would have invested Rs 12,000.

If the NAV on the day you invest in the first month is Rs 20, you will get 50 units.

The next month, the NAV is Rs 25. You will get 40 units.

The following month, the NAV is Rs 18. You will get 55.56 units.

So, after three months, you would have 145.56 units. On an average, you would have paid
around Rs 21 per unit. This is because, when the NAV is high, you get fewer units per Rs
1,000. When the NAV falls, you get more units per Rs 1,000.

7
DEFINITION:

“Mutual funds are collective savings and investment vehicles where savings of small (or
sometimes big) investors are pooled together to invest for their mutual benefit and returns
distributed proportionately”.

“A mutual fund is an investment that pools your money with the money of an unlimited
number of other investors. In return, you and the other investors each own shares of the
fund. The fund's assets are invested according to an investment objective into the fund's
portfolio of investments. Aggressive growth funds seek long-term capital growth by
investing primarily in stocks of fast-growing smaller companies or market segments.
Aggressive growth funds are also called capital appreciation funds’’

8
 1.2 History of mutual fund in India

Phases of mutual funds

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India,
at the initiative of the Government of India and Reserve Bank of India. The history of
mutual funds in India can be broadly divided into four distinct phases

 PHASE I: 1964 – 1987 (UNIT TRUST OF INDIA):

This phase spans from 1964 to 1987. In 1963, UTI was established by an act of parliament
and given a monopoly. Operationally, UTI was set up by Reserve Bank of India, but was
later delinked from the RBI. The first and still one of the largest scheme, launched by UTI
was Unit Scheme 1964. Over the years, US – 64 attracted, and probably still has the largest
number of investors in any single investment scheme. It was also at least partially the first
open – end scheme in the country.

Later in 1970s and 1980s, UTI started innovating and offering different schemes to suit the
needs of different class of investors. Unit Linked Insurance Plan (ULIP) was launched in
1971. Six new schemes were introduced between 1981 and 1984. During 1984 – 87, new
schemes like Children’s Gift Growth Fund (1986) and Master share (1987) were launched.
Master share could be termed as the first diversified equity investment scheme in India. The
first Indian offshore fund, India fund, was launched in August 1986. During 1990’s, UTI
catered to the demands for income-oriented schemes by launching Monthly Income
Schemes, a somewhat unusual mutual fund product offering, “assured returns”.

The mutual fund industry in India not only started with UTI, but still counts as its largest
player with the largest corpus of investible funds among all mutual funds currently operating
in India. Until 1980s, UTI’s operations in the stock market often determined the direction of
market movements. Foreign and other situational players have been brought in. so direct
influence of UTI on the markets may be less than before, though it remains largest player in
industry. In absolute terms, the investible funds corpus of even UTI was still relatively small
at about Rs.600 crores in 1984.

9
  PHASE II: 1987 – 1993 (Entry of Public Sector Funds):

1987 marked the entry of non – UTI, public sector mutual funds, bringing in competition.
With the opening up of the economy, many public sector banks and financial institution
were allowed to establish mutual funds. The State Bank of India established the first non –
UTI mutual fund – SBI Mutual Fund – in November 1987. This was followed by Can bank
Mutual Fund (launched December 1987), LIC Mutual Fund (launched in 1989) and Indian
Bank Mutual Fund (launched in 1990) followed by Bank of India Mutual Fund, GIC Mutual
Fund and PNB Mutual Fund. These mutual funds helped enlarge the investor community
and the investible funds. From 1987-1992/93, the fund industry expanded nearly seven times
in turns of assets under management.

During this period, investors were shifting away from bank deposits to mutual funds, as they
started allocating larger part of their financial assets and savings (5.2%in 1992, 3.1%1988)
to fund investments. UTI was still the largest segment of the industry, although with nearly
20% market share ceded to the public sector mutual funds.

 PHASE III: 1993-1996 (Emergence of Private Sector Funds)

A new era in the mutual funds industry began with the permission granted for the entry of
private sector funds in 1993, giving the Indian investors a broader choice of ‘fund families’
and increasing competition for the public sector funds. Quite significantly, foreign fund
management companies were also allowed to operate mutual funds, most of them coming
into India through their joint ventures with Indian promoters. These private funds have
brought in with them the latest product innovations, investment management techniques and
investor servicing technology that makes the Indian mutual fund industry today a vibrant
and growing financial intermediary.

During the year1993-94, five private sector mutual funds launched their schemes followed
by six others in 1994-95. Initially the mobilization of funds by the private mutual funds was
slow. But this segment of the fund industry now has been witnessing much greater investor
confidence in them. One influencing factor has been the development of a SEBI driven
regulatory framework for mutual funds. But another important factor has been the steadily
improving performance of several funds themselves. Investors in India now clearly see the
benefits of investing through mutual funds and have started becoming selective.

10
 The entire mutual fund industry in India, despite initial hiccups, has since scaled new
heights in terms of mobilization of funds and number of players. Deregulation and
liberalization of the Indian economy has introduced competition and provided impetus to the
growth of the industry. Finally, most investors- small or large-have started shifting towards
mutual funds as opposed to banks or direct market investments.

More investor friendly regulatory measures have been taken both by SEBI to protect the
investor and by the government to enhance investors’ returns through tax benefits. A
comprehensive set of regulations for all mutual funds operating in India has been
accomplished with SEBI (Mutual Fund) regulations, 1996. These regulations set uniform
standards for all funds and eventually be applied in full to Unit Trust of India as well, even
though its own UTI Act governs UTI. In fact, UTI has been voluntarily adopting SEBI
guidelines for most of its schemes. Similarly, the 1999 Union Government Budget took a big
step in exempting all mutual fund dividends from income tax in the hands of the investors.

The mutual fund industry in 1999 seems to mark the beginning of a new phase in its history,
a phase of significant growth in terms of assets under management.

The size of the industry is growing rapidly, as seen by the figure of assets under
management, which have gone from over 68,000crores to nearly 87,000crores in just one
year. Within the growing industry, by March 1999; UTIS share of mobilization had
decreased to 55% (from 85% in 1992-93), while the share of the private sector stood at 37%.
During April to October 1999, the sector accounted for 59% of mobilizations. Mobilizations
during this period of 7 months in fact exceeded the same for the whole of 1998-99.it is also
clear that the enhanced share of the private sector is explained not only by the growing
appetite for mutual funds, but also by the growing acceptance of the private sector funds.

 PHASE IV: SINCE FEBRUARY 2003

In February 2003, following the repeal of the unit trust of India act 1963 UTI was bifurcated
into two separate entities. One is the specified undertaking of the unit trust of India with
assets under management of rs.29, 835 crores as at the end of January 2003, representing
broadly, the assets of us 64 schemes, assured return and certain other schemes. The specified
undertaking of unit trust of India, functioning under an administrator and under the rules
framed by government of India and does not come under the purview of the mutual fund
regulations.

11
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, 000crores of assets under
management and with the setting up of a UTI mutual fund, conforming to the SEBI mutual
fund regulations, and with recent mergers taking place among different private sector funds,
the mutual fund industry has entered its current phase of consolidation and growth. As at the
end of September, 2004, there were 29 funds, which manage assets of rs.153108 crores
under 421 schemes as at the end of March 2007, there were 30 mutual funds, which
managed assets of rs.3, 26,388 crores under 756 schemes.

The graph indicates the growth of assets over the years.

GROWTH IN ASSETS UNDER MANAGEMENT

 Note:

Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the
Unit Trust of India effective from February 2003. The Assets under management of the
Specified Undertaking of the Unit Trust of India has therefore been excluded from the total
assets of the industry as a whole from February 2003 onwards.

12
 1.3 Concept of mutual fund

Mutual fund is a trust that pulls the saving of number of investor 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 this investment and
capital appreciation are shared by it's unit holder in proportion to the number of units owned
by them. Thus a mutual fund is the most suitable investment for the common man. it offers
an opportunity to invest in a diversified professionally managed basket of securities at a
relatively low cost

The flowchart below describes broadly the working of a mutual fund

13
 1.4 Classification of mutual fund
Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position,
risk tolerance and return expectations etc. thus mutual funds has Variety of flavors, Being a
collection of many stocks, an investors can go for picking a mutual fund might be easy.
There are over hundreds of mutual funds scheme to choose from. It is easier to think of
mutual funds in categories, mentioned below.

A) BY STRUCTURE
1. Open - Ended Schemes:

Open-ended fund is the most common type of mutual fund available. Mutual fund houses
trade units of mutual funds at NAV (Net Asset Value). Open-ended funds provide exit
anytime for the investor and make pay out on the basis of the NAV, which is published by
the fund houses daily.

2. Close - Ended Schemes:

14
On closing of New Fund Offer (NFO), investors cannot trade their units. The price of the
closed-ended mutual funds is based on the demand and supply just like stocks. Closed-ended
mutual funds are not liquid and the prices are less than the normal price per unit due to less
volume of trading. Investors cannot enter nor exit from the scheme till the term of the
scheme ends.

3. Interval Schemes;

The funds which have a features-mix of open-ended and closed-ended are called interval
funds. Interval funds are closed funds with an option to transact funds directly for a certain
pre-decided period. They have open-ended feature during that pre-defined period and close-
ended for the rest of the time.

B) BY NATURE
1. Equity Funds

Equity funds are mutual funds which invest majorly in equity stocks of the company. Equity
funds are considered to be risky but they tend to give higher returns in the long term.

2. Debt Funds

Debt funds are mutual funds which usually invest in the government securities, corporate
bonds etc. Debt funds are more stable and less volatile to the market conditions..

3. Balanced

Balance or hybrid funds are a mix of equity and debt funds. They tend in to invest an equal
amount in equity and debt funds to keep the risk level balanced in the investment.

C) BY INVESTMENT OBJECTIVE:
1. Growth Funds

The money is invested in growth funds with the prime objective of getting a capital
appreciation. Although growth funds are risky, they tend to offer high returns in the long
run.

15
 2. Income Funds

Money gets invested in fixed income instruments like government bonds and debentures
under income funds. The objective of the income fund is stable income on investment with
modern growth of capital.

3. Balanced Schemes:

Balanced Schemes aim to provide both growth and income by periodically distributing a
part of the income and capital gains they earn. These schemes invest in both shares and fixed
income securities, in the proportion indicated in their offer documents (normally 50:50).

4. Money market scheme:

Money Market Schemes aim to provide easy liquidity, preservation of capital and
moderate income. These schemes generally invest in safer, short-term instruments, such as
treasury bills, certificates of deposit, commercial paper and inter-bank call money.

D) OTHER SCHEMES

1. Tax saving schemes:

ELSS or tax saving mutual funds come under the section 80C of the Income Tax Act, 1961
and qualify for a deduction of up to INR 1, 50,000 for a financial year. The majority of the
investment gets invested in equity stocks. There is a lock-in period of 3 years on the ELSS
investment.

2. Index Funds:

The index fund is a type of investment which is made to match the working of a market
index like BSE. These funds provide broader exposure to the market, less operating cost and
low portfolio turnover.

3. Sector Funds:

Sector funds are the funds that stick to one sector of the industry when investing. For
example – Real Estate mutual funds will only invest in those companies which are in real
estate business or sector. The returns of the investment also depend on the performance of
the particular sector.

16
4. Commodity Focused Stock Funds:

The investment is done in companies that are working in the commodities market, for
example, mining companies or producers of commodities. Performance of these funds is
directly linked to the performance of those commodities in the market.

5. Real Estate Funds:

As the name sounds, the real estate funds invest their money in real estate business. The
investment in a real estate project can be made at any phase of the project.

6. Fund of Funds:

Funds of funds are the types of mutual funds that invest in other mutual funds. The returns
solely depend upon the performance of the target fund. These types of funds are also
referred to as multi-manager funds.

7. Capital Protection Funds:

The primary objective of these funds is to protect the money invested and thus the funds get
split in between equity and fixed income investments.

8. Fixed Maturity Funds:

In fixed maturity funds, the investment is made in closed-ended debt funds having a fixed
date of maturity.

9. Pension funds:

Money invested in pension funds are for a long period of time keeping in mind the long-term
objective of getting a regular pension to the investor when he retires. The money in the
pension funds gets invested in equity and debt instruments where equity helps the
investment grow and debt funds maintain a balance of risk in the investment. The returns on
the pension fund can be withdrawn as a lump sum or as regular pension or even the
combination of the both.

E) BASED ON SPECIALITY
1. Emerging Market Funds:

In emerging market funds, the investment is made in the developing countries which are
growing economically at a good rate. These funds are considered risky as a lot of other
17
factors depend on the performance of political and economic situations of the particular
developing country.

2. International Funds:

International funds invest their money in the international companies located in other parts
of the world. International funds are also known as foreign funds. The money in
international funds will not be invested in the investor's own country.

3. Global Funds:

These are similar to international funds and invest their money in the companies located in
all the parts of the world. The only difference from international funds is that investment can
also be made in the same country of the mutual fund investment.

4. Market Neutral Funds:

These funds do not invest directly in the market. They invest in securities, treasury bills with
the aim of steady and fixed growth.

5. Inverse/leveraged Funds:

These funds don't operate as a normal mutual fund. They make a profit when the market
falls and incur a loss when the market does well. The risk factor in such funds is very high as
they can make you huge loss or profit as per the market conditions.

6. Asset Allocation Funds:

These funds allow the portfolio manager to adjust the allocated assets to achieve results. The
amount of investment gets divided into such funds to invest in different instruments like
bonds and equity.

F) BASED ON RISK
1. Low Risk:

These types of mutual funds invest in debt market where the risk to the investment is very
low. The investments tend to be long-term but due to the low risks associated with it, the
returns are also moderate. Example of a low-risk mutual fund will be debt funds where the
investment is made in very safe government securities.

18
2. Medium Risk:

These investments carry medium risk to the investor. Medium risk mutual funds are ideal for
those who are willing to take some risk to get good returns on their investment. The
investment portfolio is a mixture of debt funds and equity funds.

3. High Risk:

These investments are high and are for those who are willing to take a high risk on their
investment for an expectation of high returns. High-risk investment invests a majority of the
money (investment) in equity stocks of the company.

19
1.5 Advantage and Disadvantage mutual fund

1.5.1. Advantage
If mutual funds are emerging as the favorite investment vehicle, it is because of the many
advantages they have over other forms and the avenues of investing, particularly for the
investor who has limited resources available in terms of capital and the ability to carry out
detailed research and market monitoring. The following are the major advantages offered by
mutual funds to all investors:

1. Simplicity:
While investing, the
availability of
information and
data is particularly time-
consuming. If all
the information
would be easily
available,
investing would
be much simpler. In
mutual funds, the
research and data collection is done by the funds themselves. All you have to do is analyze
the performance.

Mutual fund dealers allow you to compare the funds based on different metrics, such as level
of risk, return, and price. And because the information is easily accessible, the investor will
be able to make wise decisions.

2. Professional Management:

20
Investing is obviously not an easy task. Investing, be it in shares, real estate, gold, bonds,
and so on depends on a multitude of factors that constantly need to be studied and
understood.

Many people often think they can understand the market. A great percentage of these people
end up incurring a loss.

The advantage of mutual funds is that they are managed by professional experts. Thus, to
ensure your money is invested in the right place, you have to choose the right mutual fund.

Once invested in a mutual fund, you can relax with the knowledge that an expert will make
necessary changes to the portfolio whenever required. This isn’t to say that you shouldn’t
review your investments in mutual funds. If you’ve chosen your mutual fund carefully,
reviewing it once a year is usually enough.

3. Diversification of mutual funds:

To diversify is to reduce risk. For example, let’s say you buy milk from one milkman. If
someday he falls ill, you won’t have any milk to drink! On the other hand, if you buy milk
from two milkmen, If one falls ill, you’ll still have supply from the other.

The chance of both the milkmen falling ill at the same time is very low. This is why
diversification is so important in investing as well.

The advantage of mutual funds is that diversification is automatically done. Instead of

buying shares, bonds, and other investments on your own, you outsource the task to an
expert.

4. Liquidity:
One advantage of mutual funds that is often overlooked is liquidity. In financial jargon,
liquidity basically refers to the ability to convert your assets to cash with relative ease.

For example: If you want to sell your house, how long would it take for you to sell it and get
the cash in hand? It would take you anywhere from a few weeks, to a few months.

Mutual funds are considered liquid assets since there is high demand for many of the funds.
You can, therefore, retrieve money from a mutual fund very quickly.

5. Cost:

21
Mutual funds are one of the best investment options considering the costs involved. If you
hire a portfolio management service, you’ll typically be charged 2% to 3% of the total
investment per year. They will also deduct a share from your profit.

Mutual funds are relatively cheaper and deduct only 1% to 2% of the expense ratio. Debt
mutual funds usually deduct even lesser. Read more about expense ratio

6. Tax Efficiency:
Mutual funds are relatively more tax-efficient than other types of investments. Long-term
capital gain tax on equity mutual fund is zero, which means, if you sell your investment one
year after purchase, you don’t have to pay tax.

For debt funds, long-term capital gains apply when you hold them for 3 years. To
understand tax on mutual funds. Apart from this, there are certain classes of funds, called
ELSS funds, that are exempt under section 80 C up to a limit of Rs 1.5 lakhs. Some
important features of tax-saving funds are:

a. It is a surrogate route to the direct stock market

b. The minimum investment is Rs 500 per month

c. It has a lock-in-period of only 3-years

d. The returns are tax-free as well

7. You Can Start with a Small Amount:

Unlike other investments like real estate or stocks, mutual funds allow you to start as small
as Rs 500. One can start with mutual funds with as low as Rs 500 or Rs 1000. Some funds,
like Reliance Small Cap Fund allow you to start with just Rs 100.

-Mutual funds to start with Rs 500

-Mutual funds to start with Rs 1000

8. Automated Investment:

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Mutual funds are largely beneficial because one can invest with less money. The Systematic
Investment Plan or SIP is an excellent example wherein the money gets automatically
debited from your account. You can choose a fund that suits your investing goal.

9. Safe and Transparent:

Investments in mutual funds are very transparent. All mutual fund companies come under
the purview of SEBI and they need to make necessary disclosures.

Value of stocks, historical performance of the fund, fund manager’s qualification and the
track records are known. The NAV (net asset value) of the fund is updated every day. On
any mutual fund page like Grow – you can look at the details about the mutual fund.

10. Option to Choose SIP or Lump sum:

Mutual funds also give you the flexibility to invest through SIP (systematic investment plan)
or lump sum

11. Match Your Style:

If you have more knowledge about certain industries or sectors, but don’t have enough
expertise to know which company to invest in, you can make use of sector mutual funds.

By doing so, you are ensuring your money gets invested in a certain industry without having
to research which company to invest in.

Sector mutual funds stick to investing primarily in a certain sector only. Some common
types of sector mutual funds are mining funds, energy funds, automobile funds, etc.

1.5.2. Disadvantages

23
1. Fluctuating returns:
Mutual funds do not offer fixed guaranteed returns in that you should always be prepared for
any eventuality including depreciation in the value of your mutual fund. In other words,
mutual funds entail a wide range of price fluctuations. Professional management of a fund
by a team of experts does not insulate you from bad performance of your fund.

2. No Control:
All types of mutual funds are managed by fund managers. In many cases, the fund manager
may be supported by a team of analysts. Consequently, as an investor, you do not have any
control over your investment. All major decisions concerning your fund are taken by your
fund manager. However, you can examine some important parameters such as disclosure
norms, corpus and overall investment strategy followed by an Asset Management Company
(AMC).

3. Diversification:
Diversification is often cited as one of the main advantages of a mutual fund. However,
there is always the risk of over diversification, which may increase the operating cost of a
fund, demands greater due diligence and dilutes the relative advantages of diversification.

4. Fund Evaluation:
Many investors may find it difficult to extensively research and evaluate the value of
different funds. A mutual fund's net asset value (NAV) provides investors the value of a
fund's portfolio. However, investors have to study various parameters such as sharpe ratio
and standard deviation among others to ascertain how one fund has fared compared to
another which can be complicated to some extent.

5. Past performance:
Ratings and advertisements issued by companies are only an indicator of the past
performance of a fund. It is important to note that robust past performance of a fund is not a
guarantee of a similar performance in the future. As an investor, you should analyze the
investment philosophy, transparency, ethics, compliance and overall performance of a fund
house across different phases in the market over a period of time. Ratings can be taken as a
reference point.

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6. Costs:
The value of a mutual fund may fluctuate depending on the changing market conditions.
Furthermore, there are fees and expenses involved towards professional management of a
mutual fund which is not the case for buying stocks or securities directly in the market.
There is an entry load which has to be borne by an investor when buying a mutual fund.
Furthermore, some companies charge an exit cost as well when an investor chooses to exit
from a mutual fund.

7. CAGR:
The performance of a mutual fund vis-a-vis the compounded annualized growth rate
(CAGR) neither provides investors adequate information about the amount of risk facing a
mutual fund nor the process of investment involved. It is therefore, only one of the
indicators to gauge the performance of a fund but is far from being comprehensive.

8. Fund managers:
According to experts, as an investor, you would do well not to be carried away by the so-
called ‘star fund managers’. Even a highly skilled manager can make a positive difference in
the short-term but cannot dramatically change the performance of a fund in the long-term.
Also, there is always the likelihood of a star fund manager joining another company. It is,
therefore, more prudent to examine the processes which are followed by a fund house rather
than the star appeal of just one individual.

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 1.6 Important Factors to Consider Before
Choosing Mutual Fund

1. Investment objective and style:

There’s an objective that every mutual fund, without exceptions, follow. This helps them to
determine and invest in various asset classes that would help meet the objectives. Check if
the fund’s objective and yours align so that your goals are also fulfilled. Choosing a fund
with similar objective makes your investment reach its goal faster and better.

As for the style, you can choose from large cap, mid cap, small or micro-cap, multi-cap and
flexi cap funds. These are market capitalizations though which you can structure your
portfolio better. You must also assess the fund’s management style to know how well it
would be able to handle your money.

2. Fund performance:
The performance needs to be considered because it gives you an idea of how it has handled
money in the past over a period of time. Ensure that you measure the performance over a
significantly long period so that you know the pattern and can make a good judgment. You
may want to look into what kind of risks the fund has exposed you to over a period of time.
Also, check if there was any clogging of risk-adjusted returns. Review the various portfolio
that was held by them and how often was it churned. This should give you the entire
snapshot of the fund’s performance.

4. Experience of the fund manager:

This plays a significant role in generating returns. How? A fund manager has to keep
moving the capital in the direction where the market seems promising. This requires
expertise and experience. Besides their tenure also help you determine how reliable they are.
The fund performance is largely impacted by the fund manager’s expertise and tenure and
thus, it becomes crucial to be sure who you are entrusting your hard-earned money to.

26
5. Expense ratio:
This is usually considered when you invest in an equity fund. The higher the expense ratio,
the more it affects you directly. It comprises of the brokerage fees and other costs that the
mutual fund houses charge from investors. Hence, you need to see if the charges are not over
the top. However, there are funds that charge high but make it up by offering a higher NAV
or better returns. So consider these also while checking the expense ratio.

6. Exit load:
Exit load is another cost that you directly incur. It is a fraction of the NAV that you receive
and thus, leaves a hole in your investment value. So, the lower exit load a fund offers, the
better is it for you. Having said that, it only comes into play if you wish to sell your units. It
is always beneficial that you stay invested for a long term to reap good returns from any
mutual fund.

27
 1.7 Some of the main differences between mutual funds
and equity can be seen below

 Risk

Mutual funds are usually considered to be best suited for those individuals who have a low
risk profile or are risk-averse by nature. However, investors in equity or individual stocks
tend to be more active with a penchant for taking risks. In this sense, mutual funds are seen
as a ‘safer’ bet in comparison to equity stocks, due to their low risk quotient.

 Returns

While mutual funds offer investors very decent returns over a period of time, equity stocks
have the potential to bring the investor extremely high returns over a much shorter period of
time. Investing in stocks can be tricky, and is usually only done by individuals with an in-
depth understanding of market conditions.

 Volatility

Equity stocks or individual stocks are very volatile by nature. The value of these investments
could skyrocket or plummet within an extremely short span of time, leading to either
massive profits or damaging losses. However, mutual funds are a much more stable form of
investment due to its diversity. This makes it a less volatile form of investment since all
gains and losses are spread out over a wider range of stocks.

 Convenience

Individuals who invest in mutual funds enlist the services of a fund manager who takes care
of his or her portfolio, making it an extremely convenient form of investment. However,
investing in equity requires the individual to constantly monitor his or her investments due
to the ever-changing nature of individual stocks. Investors in equity are dependant on their
own knowledge of the market while mutual fund investors rely on the expertise of the fund
manager to guide them.

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  Costs

Trading in individual or equity stocks usually comes at a huge cost. Sometimes, any profits
made from the sale of a stock can be wiped out due to the high trading cost involved. This is
one of the reasons why only those investors with a high risk profile tend to invest in equity.
Trading in mutual funds, however, comes at a much lower cost since these expenses are
spread over all portfolios within the fund.

Based on the information outlined above, both mutual funds and equity stocks come with
their pros and cons. Therefore, it is highly recommended that individuals looking to invest in
either one take the time to determine which form of investment best suits their profile as
well as their budget.

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 1.8 Systematic method of mutual fund

A) Systematic Investment Plan (SIP)

A Systematic Investment Plan or SIP is a smart and hassle free mode for investing money in
mutual funds. SIP allows you to invest a certain pre-determined amount at a regular interval
(weekly, monthly, quarterly, etc.). A SIP is a planned approach towards investments and
helps you inculcate the habit of saving and building wealth for the future.

 How does it work?

A SIP is a flexible and easy investment plan. Your money is auto-debited from your bank
account and invested into a specific mutual fund scheme. You are allocated certain number
of units based on the ongoing market rate (called NAV or net asset value) for the day. Every
time you invest money, additional units of the scheme are purchased at the market rate and
added to your account. Hence, units are bought at different rates and investors benefit from
Rupee-Cost Averaging and the Power of Compounding.

 Rupee-Cost averaging

With volatile markets, most investors remain skeptical about the best time to invest and try
to 'time' their entry into the market. Rupee-cost averaging allows you to opt out of the
guessing game. Since you are a regular investor, your money fetches more units when the price
is low and lesser when the price is high . During volatile period, it may allow you to achieve a
lower average cost per unit.

 Power of Compounding

Albert Einstein once said, "Compound interest is the eighth wonder of the world. He, who
understands it, earns it… He who doesn't... Pays it." The rule for compounding is simple -
the sooner you start investing, the more time your money has to grow.

Example
if you started investing Rs. 10000 a month on your 40th birthday, in 20 years’ time you

30
 would have put aside Rs. 24 lakh. If that investment grew by an average of 7% a year, it
would be worth Rs. 52.4 lakh when you reach 60.

However, if you started investing 10 years earlier, your Rs. 10000 each month would add up
to Rs. 36 lakh over 30 years. Assuming the same average annual growth of 7%, you would
have Rs. 1.22 Cr on your 60th  birthday - more than double the amount you would have
received if you had started ten years later!

Other Benefits of Systematic Investment Plans

 Disciplined Saving - Discipline is the key to successful investments. When you invest
through SIP, you commit yourself to save regularly. Every investment is a step towards attaining
your financial objectives.
 Flexibility - While it is advisable to continue SIP investments with a long-term perspective,
there is no compulsion. Investors can discontinue the plan at any time. One can also increase/
decrease the amount being invested.
 Long-Term Gains - Due to rupee-cost averaging and the power of compounding sips have
the potential to deliver attractive returns over a long investment horizon.

Convenience - SIP is a hassle-free mode of investment. You can issue a standing instruction
to your bank to facilitate auto-debits from your bank account.
Sips have proved to be an ideal mode of investment for retail investors who do not have the
resources to pursue active investments.

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 B) SYSTEMATIC WITHDRAWAL PLAN (SWP)
In essence, SWP is the reverse of SIP. Where in SIP you look at accumulating a corpus by
making regular investments into a fund, in SWP you regularly withdraw a fixed amount of
money from a fund.  The amount to be withdrawn and the frequency are fixed by the
investor. So you can have a monthly, quarterly or annual frequency for any fixed amount
that you wish to receive.

Mr. Gupta would be very happy to receive a fixed amount in his account every month, when
he retires. Anchal is currently on a sabbatical to bring up her baby. She would be thrilled to
put her savings to use for generating a small regular income flow for herself. SWP can help
Mr. Gupta and Anchal plan their cash flows. This is one of the many methods available for
generating a regular income from your savings.

Let us look at some examples of how this strategy will work. Say Mr.Gupta has Rs.10 lakh
which he wants to use for generating income through SWP. Let’s look scenarios with
investments in three different type of funds.

Amount Invested: Rs 10 lakh

Systematic withdrawal amount: Rs 10000 per month

Date of SWP: 2nd of every month

Start of SWP: 02 Feb 2010

End of SWP: 20 Feb 2013

Total amount withdrawn: Rs 240000

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 BENEFITS:
1. Regularity:

 With an SWP, you are assured of getting a fixed amount at your pre-determined frequency.
The problem with other options like a monthly income plans, which pay dividends, is that
the amount and the frequency of the payouts is not fixed. Sometimes, if there is no
appreciation which can be distributed, you might have no dividends to be paid. Hence every
month you will have different amounts coming in and some month there might be no money
received.

2. Taxation:

SWP is better from the taxation point of view too. In debt funds dividends are paid after
deduction of dividend distribution tax (DDT) of 13.5%. So that will be your tax in case you
depend on dividend income from your debt mutual funds. In case of SWP, you will pay a
short term capital gain (STCG) or a long term capital gains tax (LTCG). Though STCG may
be more expensive as it is on the income slab of the investor, LTCG will be beneficial as it is
a fixed rate of 10% or 20% with indexation. Things get better in case of SWP from equity
funds. As the long term capital gains from equity mutual funds are exempt in case of holding
beyond a year, you end up paying no tax on the withdrawals.

3. Inflation Protection:

Most of the fixed income instruments do not offer inflation beating returns. So, thoughthe
principal may be secure, the income might fall short of needs in future. Here again SWP
scores in terms of generating returns to keep upwith inflation especially if you opt for an
equity fund. The only drawback in the SWP is that it will at some point eat into your capital.
But judicious mix of investment instruments will ensure that your primary goal of income
generation will be met without you running out of money in times of need. So the
conclusion is that SWP is a noteworthy strategy to use for generation of regular income in
various scenarios.  

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 C) SYSTEMATIC TRANSFER PLAN (STP)
STP is a variant of SIP. STP is essentially transferring investment from one asset or asset
type into another asset or asset type. The transfer happens gradually over a period.

 STP and its importance

Systematic Transfer Plan is of two types; fixed STP, and capital appreciation STP. A fixed
STP is where investors take out a fixed sum from one investment to another. A capital
appreciation STP is where investors take the profit part out of one investment and invest in
the other.

 Example of STP

Suppose you have invested 5 lakh in debt funds because you thought market is trading at
close to peak. The PE ratio of the market is 25 and hence you think that fall is imminent.
Hence you invested your money in debt fund. Now assume that your prophecy was right and
the market indeed fell to a level where you can make entry to equities. However, there are
overall weak sentiments which may push market further down. What is the best strategy in
this case?

You can take out 5 lakh out of debt fund and invest in equity oriented mutual fund. The risk
is that if the market goes further down, your fund value will also fall. This is a risky strategy.
Moreover, if the weak sentiments prolong for some time, you will lose on the opportunity
cost because your money is stuck with an investment which has gone down in value.

There is other way which can really minimize the risk. The way is called STP. In this case,
you can withdraw a fixed amount from your debt fund investment and invest in equity
oriented fund. This can go on for several months depending upon your choice. For example,
if you want to continue STP for 3 years, you can direct your fund to do this and the fund will
withdraw money automatically from your debt fund and put into equity oriented fund every
month. What this strategy achieves is that it essentially acts as a defense against any adverse
movement of the market.

34
 1.9 INVESTEMNT PROCEDURE IN MUTUAL FUNDS

1. Offer document:

An offer document is issued when the amcs make New Fund Offer (NFO). It’s advisable to
every investor to ask for the offer document and read it before investing. An offer document
consists of the following:

Standard Offer Document for Mutual Funds (SEBI Format)

 Summary Information
 Glossary of Defined Terms
 Risk Disclosures
 Legal and Regulatory Compliance
 Expenses
 Condensed Financial Information of Schemes
 Constitution of the Mutual Fund
 Investment Objectives and Policies
 Management of the Fund
 Offer Related Information.

35
2. Key Information Memorandum:

A key information memorandum, popularly known as KIM, is attached along with the
mutual fund form. And thus every investor gets to read it. Its contents are:

1 Name of the fund.

2. Investment objective

3. Asset allocation pattern of the scheme.

4. Risk profile of the scheme

5. Plans & options

6. Minimum application amount/ no. Of units

7. Benchmark index

8. Dividend policy

9. Name of the fund manager(s)

10. Expenses of the scheme: load structure, recurring expenses

11. Performance of the scheme (scheme return v/s. Benchmark return)

12. Year- wise return for the last 5 financial years

36
 1.10 RIGHTS AND DUTIES OF INVESTORS

WHO IS AN INVESTOR?

Source: http://www.ic.or.th

Every investor, given his/her financial position and personal disposition, has a certain
inclination to take risk. The hypothesis is that by taking an incremental risk, it would be
possible for the investor to earn an incremental return. Mutual fund is a solution for
investors who lack the time, the inclination or the skills to actively manage their investment
risk in individual securities. They delegate this role to the mutual fund, while retaining the
right and the obligation to monitor their investments in the scheme. In the absence of a
mutual fund option, the money of such “passive” investors would lie either in bank deposits
or other ‘safe’ investment options, thus depriving them of the possibility of earning a better
return. Investing through a mutual fund would make economic sense for an investor if
his/her investment, over medium to long term, fetches a return that is higher than what
would otherwise have earned by investing directly.

37
1.10.1 RIGHTS OF INVESTORS IN RESPECT OF SERVICE
STANDARD
Investor is entitled to following rights as per regulation of SEBI:
 Investors are entitled to receive dividends declared in a scheme within 30 days
 Redemption proceeds have to be sent to investors within 10 days
 If an investor fails to claim the dividend or redemption proceeds he
 Has the rights to claim it up to a period of 3 years from the due date at the then
prevailing NAV.
 Mutual funds have to allot units within 30 days of the IPO and also
 Open the scheme for redemption, if it is an open -ended scheme
 Mutual funds have to publish their half yearly results in at least one
 National daily and publish their entire portfolios, at least once in 6 months. Such
disclosure should be done within 30 days from 6 monthly account closing dates of
the fund.
 Trustees will have to ensure that any information having a material impact on the
unit holder’s investments should be made public by the mutual fund.
 If 75% of the unit holders so decide, that the scheme can be wound
 Up then the meeting of unit holders can be called and appointment of the AMC of
the mutual fund can be terminated
 If there is any change in the fundamental attributes of the scheme, the unit holders
have to be notified through a letter.
 They also have a right to repurchase at NAV without any load, before such change is
affected.
 Unit holders have the right to inspect certain documents

1.10.2 LIMITATIONS OF INVESTOR RIGHTS

Investors cannot lodge complaints against the Trustees (with the Registrar of Public Trusts)
or the AMC with the Company Law Board (CLB).Investors cannot lodge complaints with
SEBI for non compliance. Investors cannot be compensated if the performance of the fund is
below expectations.

38
 1.11 WHO CAN INVEST IN MUTUAL FUNDS?

1. RESIDENTS:

Adult individuals holding singly or jointly

Key points:

a) Minors can invest through parents or guardians.

b) Maximum joint owners can be 3.
 Hindu undivided family through their head, Karta.
 Companies/corporate bodies/banks/non-banking financial institutes / aop’s/boi’s /
religious trusts/charitable trust/societies registered under societies registration act,
1960.

Key points:

All these entities can purchase units of mf subject to permission from constituent document.

 Mutual funds registered under sebi.

 Army / air force / navy or other paramilitary units and bodies created by such
institution besides other institutions.

I. FII’S
Foreign institution investors registered with sebi.

II. MFA’S
Multilateral funding agencies (mfas)/ bodies corporate registered outside India with
permission of government of India / reserve bank of India.

III. OVERSEAS FINANCIAL ORGANISATION:

39
 Overseas financial organization which have entered into arrangement for investment in
India.

Key points:

Mutual funds should be registered with sebi and investment arrangement should be approved
by central government.

IV. NRI’S/OCB’S:
NRI’S /OCB’S /FII’S and person of Indian origin residing abroad on a full repatriation
basis/non-repatriation basis.

40
 1.12 RISK INVOLVED IN MUTUAL FUND

Mutual funds investment is subject to market risks. As mutual funds investment is made
primarily in the capital market they are subject to various kinds of risks. The following are
some of the risks associated with the investment in mutual funds.

1. Market Risk
The net asset values of mutual funds may rise and fall dramatically which may be due to
prevailing market conditions. This is known as Market risk.

2. Credit Risk
The debt servicing ability (may it be interest payments or repayment of principal) of a
company through its cash flows determines the Credit risk faced by the company. This credit
risk is measured by independent rating agencies like CRISIL who rate companies and their
paper. An “AAA” rating is considered the safest whereas a “D” rating is considered Poor
credit quality.

41
3. Inflation Risk
Inflation is the loss of purchasing power over time. Many times people make conservative
investment decisions to protect their capital but end up with a sum of money that can buy
less than what the principal could at the time of the investment. This happens when inflation
grows faster than the return on investment.

4. Interest Rate Risk

In a free market economy interest rates are difficult if not impossible to predict. Changes in
interest rates affect the prices of bonds as well as equities. If interest rates rises the prices of
bonds fall and vice versa. Equity might be negatively affected in a rising interest rate
environment.

5. Political/ Government Policy Risk

Changes in government policy and political decision can change the investment
environment. They can create a positive environment for investment or vice versa. Thus the
growth and development of mutual funds depends to a large extent on the policy of the
government.

6. Liquidity Risk
Liquidity risk arises when it becomes difficult to sell the securities that one has purchased.
Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well as
internal risk controls that lean towards purchase of liquid securities.

42
 1.13 ROLE OF SEBI AND AMFI IN MUTUAL
FUND INDUSTRY

1.13.1 ROLE OF AMFI IN MUTUAL FUND INDUSTRY

The Association of Mutual Funds in India

(AMFI) is dedicated to developing the Indian Mutual Fund Industry on professional, healthy
and ethical lines and to enhance and maintain standards in all areas with a view to protecting
and promoting the interests of mutual funds and their unit holders.

AMFI, the association of SEBI registered mutual funds in India of all the registered Asset
Management Companies, was incorporated on August 22, 1995, as a non-profit
organization. As of now, all the 44 Asset Management Companies that are registered with
SEBI are its members.

Objectives:

 To define and maintain high professional and ethical standards in all areas of
operation of mutual fund industry.

43
  To recommend and promote best business practices and code of conduct to be
followed by members and others engaged in the activities of mutual fund and asset
management including agencies connected or involved in the field of capital markets
and financial services.
 To interact with the Securities and Exchange Board of India (SEBI) and to represent
to SEBI on all matters concerning the mutual fund industry.
 To represent to the Government, Reserve Bank of India and other bodies on all
matters relating to the Mutual Fund Industry.
 To undertake nationwide investor awareness program so as to promote proper
understanding of the concept and working of mutual funds.
 To disseminate information on Mutual Fund Industry and to undertake studies and
research directly and/or in association with other bodies.
 To take regulate conduct of distributors including disciplinary actions (cancellation
of ARN) for violations of Code of Conduct.
 To protect the interest of investors/unit holders.

1.13.2 AMFI CODE OF ETHICS:

One of the objects of the Association of Mutual Funds in India (AMFI) is to promote the
investors’ interest by defining and maintaining high ethical and professional standards in the
mutual fund industry. In pursuance of this objective, AMFI had constituted a Committee
under the Chairmanship of Shri A. P. Pradhan with Shri S. V. Joshi, Shri C. G. Parekh and
Shri M. Laxman Kumar as members. This Committee, working in close co-operation with
Price Waterhouse–LLP under the FIRE Project of USAID, has drafted the Code, which has
been approved and recommended by the Board of AMFI for implementation by its

44
 members. I take opportunity to thank all of them for their efforts. The AMFI Code of Ethics,
“The ACE” for short, sets out the standards of good practices to be followed by the Asset
Management Companies in their operations and in their dealings with investors,
intermediaries and the public. SEBI (Mutual Funds) Regulation 1996 requires all Asset
Management Companies and Trustees to abide by the Code of conduct as specified in the
Fifth Schedule to the Regulation. The AMFI Code has been drawn up to supplement that
schedule, to encourage standards higher than those prescribed by the Regulations for the
benefit of investors in the mutual fund industry.

1.13.3 ROLE OF SEBI IN MUTUAL FUND:

An index fund scheme’ means a mutual fund scheme that invests in securities in the same
proportion as an index of securities;” A mutual fund may lend and borrow securities in
accordance with the framework relating to short selling and securities lending and borrowing
specified by the Board. “A mutual fund may enter into short selling transactions on a
recognized stock exchange, subject to the framework relating to short selling and securities
lending and borrowing specified by the Board.” “Provided that in case of an index 13 fund
scheme, the investment and advisory fees shall not exceed three fourths of one percent
(0.75%) of the weekly average net assets.’’

Every mutual fund shall buy and sell securities on the basis of deliveries and shall in all
cases of purchases, take delivery of relevant securities and in all cases of sale, deliver the
securities: Provided that a mutual fund may engage in short selling of securities in
accordance with the framework relating to short selling and securities lending and borrowing
specified by the Board: Provided further that a mutual fund may enter into derivatives
transactions in a recognized stock exchange, subject to the framework specified by the
Board.”

Chapter no. 2
45
 Research and Methodology
2.1 Objectives of the Study
2.2 Scope of the Study
2.3 Limitation of the Study
2.4 Sources of data

46
2.1 Objectives of the Study

 To study the level of awareness of mutual funds.

 To analyze the perception of investors towards mutual funds.
 To study the factors considered by the investors and those which ultimately
influences him/her while investing.
 To determine the type of mutual fund investor prefers the most.

47
 2.2 Scope of the Study
This project is limited to the study of certain selected factors and its effect on retail investors
in their investment on mutual funds, analyzing retail investor’s perception towards the
mutual fund industry .The study is limited to Mumbai district of Maharashtra.

48
 2.3 Limitation of the Study
Geographic Scope: The sample used for the study has been taken from the investors of
Mumbai city.

Frame work: Sampling frame (i.e. the list of population members) from which the sample
units are selected was incomplete as it takes into consideration only those (target investors)
who have made their investments.

Although adequate care was taken to elicit the accurate information from the respondents..
Apart from the problem faced in articulating, it is the validity of the feedback can be
speculated. Despite the above limitations the study is useful in that it does point out the
trends and helps to identify the dimensions for improving the scope of mutual fund.

49
 2.4 Sources of data
Data is collected by using both primary and secondary method:

Primary data:
Questionnaire method is used for collecting information for the research. Questionnaires
have advantages over some other types of surveys in that they are cheap, do not require as
much effort from the questioner as verbal or telephone surveys, and often have standardized
answers that make it simple to compile data. However, such standardized answers may
frustrate users. Questionnaires are also sharply limited by the fact that respondents must be
able to read the questions and respond to them. Usually, a questionnaire consists of a
number of questions that the respondent has to answer in a set format. A distinction is made
between open-ended and closed-ended questions. An open-ended question asks the
respondent to formulate his own answer, whereas a closed-ended question has the
respondent pick an answer from a given number of options. The response options for a
closed-ended question should be exhaustive and mutually exclusive.

Secondary data:
The secondary data is the data originally generated for some purpose. Other than the present
research objectives it includes the findings. Based on research is done by organization as
well as data generated. In house for earlier studies, or even information collected by
company. Secondary data is used for this project has been taken from books and websites.

50
 Chapter no. 3
Literature Review

51
Dr. D. Rajasekar (Sep2013), has done a Study on Investor`s Preference Towards Mutual
Funds With Reference To Reliance Private Limited, Chennai-An Empirical Analysis. The
data was analyzed using the statistical tools like percentage analysis, chi square, weighted
average. The report was concluded with findings and suggestions and summary. From the
findings, it was inferred overall that the investor are highly concerned about safety and
growth and liquidity of investments. Most of the respondents are highly satisfied with the
benefits and the service rendered by the Reliance mutual funds.

Dr. Binod Kumar Singh,(Mar2012), has done A Study on Investors’ Attitude towards
Mutual Funds as an Investment Option. In this paper, structure of mutual fund, operations of
mutual fund, comparison between investment in mutual fund and bank and calculation of
NAV etc. have been considered. In this paper the impacts of various demographic factors on
investors’ attitude towards mutual fund have been studied. For measuring various
phenomena and analyzing the collected data effectively and efficiently for drawing sound
conclusions.

N. Geetha and M. Ramesh, (2011), have studied Investors’ Perception On Mutual Funds
With Reference To Chidambaram Town. The main objective of the study is to elucidate the
perceptions and behaviors’ of the small investors located in the town of Chidambaram,
Tamil Nadu, South India towards the mutual funds and also suggest some measures to
increase the quantum of investors and investments as well.

Dr. Nishi Sharma (Aug 2012), has done research on Indian Investor’s Perception towards
Mutual Funds. This paper attempts to investigate the reasons responsible for lesser
recognition of mutual fund as a prime investment option. It examines the investor’s
perception with reference to distinct features provided by mutual fund companies to attract
them for investing in specific funds/schemes. The study uses principal component analysis
as a tool for factor reduction. The paper explored three factors named as fund/scheme related
attributes, monetary benefits and sponsor’s related attributes (having respectively six, four
and four variables) which may be offered to investors for securing their patronage. The
results are expected to provide fruitful insight to mutual fund companies for tailoring their
offers suitable to cater the needs and expectations of Indian investors.

52
 C. Vijendra and D. Sakriya, (June 2013) have done a Study of Investor Behavior
regarding Investment Decisions in Mutual Funds. A survey was conducted among 384
mutual funds investors from the twin cities of Hyderabad & Secundrabad to study the factors
influencing the fund/schemes election behavior of these investors. It is hoped that this
survey will underpin the AMCs with regards to planning and implementation of designing,
marketing and selling of innovative products.

Mr. Jay R. Joshi, (Mar 2013), Mutual Funds: An Investment Option from Investors’ Point
of View. This study is of descriptive type research. The target population will be individual
investor in Anand–Vidyanagar area of relatively affluent western State of Gujarat (India).
The survey will be based on convenience sampling having 100 investors as sample size. The
study will try to identify the consumers’ preference for various mutual funds and the main
reasons for investment in mutual fund schemes. The study will also try to investigate various
factors that investor is thinking before selecting a mutual fund company. Overall ,the study
is focusing on the behavior of individual investors and hence form apart of behavioral
finance area.

Dr. Binod Kumar Singh,(Mar2012), has done A Study on Investors’ Attitude towards
Mutual Funds as an Investment Option. In this paper, structure of mutual fund, operations of
mutual fund, comparison between investment in mutual fund and bank and calculation of
NAV etc. have been considered. In this paper the impacts of various demographic factors on
investors’ attitude towards mutual fund have been studied. For measuring various
phenomena and analyzing the collected data effectively and efficiently for drawing sound
conclusions.

Dr. Ranjit Singh, Dr. Anurag Singh and Dr. H. Ramananda Singh (August2011), have
done research on Positioning of Mutual Funds among Small Town and Sub-Urban
Investors .In the recent past the significant proportion of the investment of the urban investor
is being attracted by the mutual funds. This has led to the saturation of the market in the
urban areas. In order to increase their investor base, the mutual fund companies are
exploring the opportunities in the small towns and sub-urban areas. But marketing the

53
mutual funds in these areas requires the positioning of the products in the minds of the
investors in a different way. The product has to be acceptable to the investors, it should be
affordable to the investors, it should be made available to them and at the same time the
investors should be aware of it. The present paper deals with all these issues. It measures the
degree of influence on acceptability, affordability, availability and awareness among the
small town and sub-urban investors on their investment decisions.

C. Srinivas Yadav and Hemanth N C (Feb 2014), have studied Performance of Selected
Equity Growth Mutual Funds in India: An Empirical Study during 1stJune 2010 to 31st May
2013. The study evaluates performance of selected growth equity funds in India, carried out
using portfolio performance evaluation techniques such as Sharpe and Treynor measure.
S&P CNX NIFTY has been taken as the benchmark. The study conducted with 15 equity
growth Schemes(NAV ) were chosen from top 10 AMCs ( based on AUM) for the period 1st
June2010 to 31st may 2013(3 years).

Rashmi Sharma and N. K. Pandya (2013), have done an overview of Investing in Mutual
Fund. In this paper, structure of mutual fund, comparison between investments in mutual
fund and other investment options and calculation of NAV etc. have been considered. In this
paper, the impacts of various demographic factors on investors’ attitude towards mutual
fund have been studied. For measuring various phenomena and analyzing the collected data
effectively and efficiently for drawing sound conclusions, drawing pie charts has been used
and for analyzing the various factors responsible for investment in mutual funds.

Rahul Singal, Anuradha Garg and Dr Sanjay Singla (May 2013), have done
Performance Appraisal of Growth Mutual Fund. The paper examines the performance of25
Growth Mutual Fund Schemes .Over the time period Jan2004 to Dec 2008. For this purpose
three techniques are used (I) Beta (II) Sharpe Ratio (III) Treynor Ratio. Rank is given
according to result drawn from this scheme and comparison is also made between results
drawn from different schemes and normally the different are insignificant.

54
 Chapter no. 4
Data Analysis, Interpretation and Presentation

55
1) Age
A) 20-25
B) 26-30
C) 31-35
D) Above 35

Category No of respondents Percentages %

20-25 47 47
26-30 29 29
31-35 18 18
Above 35 6 6
TOTAL 100 100

Age
6%

18%
20-25
26-30
31-35
47%
above 36

29%

Interpretation:

There were total 100 respondents. The age of individuals are presented in above pie chart.
61% of respondents fall under the age gap of 20-25 years. 24% of the respondents come
under the category of second age gap. Age group of 31-35 covers 12% of total respondents.
3% of respondents come in the last category.

56
2) Occupation
A) Profession
B) Self service
C) Salaried person
D) Retired person

Category No of respondents Percentages %

Profession 25 25
Self service 33 33
Salaried person 41 41
Retired person 1 1
TOTAL 100 100

Occupation

1%
25%
Profession
Self service
41% Salaried person
Retired person

33%

Interpretation:

There were total 100 respondents. Survey reveal that maximum number of people fall
under the category of salaried people i.e. 41%. 33% of respondents come in self service.
Professional category includes 25% respondents. Out of 100 people 1 belongs to retired
categories.

57
 3) Genders
A) Male
B) Female

Category No of respondents Percentages %

Male 69 69
Female 31 31
TOTAL 100 100

Gender
Male Female

31%

69%

Interpretation:

Out of 100 respondents 69% of respondents are males and rest 31 % of respondents are females.

58
4) Salary
A) Above Rs 30,000
B) Below Rs 30,000

Category No of respondents Percentages %

Above 30,000 39 39
Below 30000 61 61
TOTAL 100 100

Salary

39% Above 30,000

Below 30000

61%

Interpretation:

From total respondents 39% of them earns a salary more than RS 30000 pm and remaining
61% of them gets salary less than 30000 pm.

59
5) Are you aware about Mutual Funds?
A) Yes
B) No

Category No of respondents Percentages %

Yes 80 80
No 20 20
TOTAL 100 100

Awareness
No
20%

Yes
80%

Interpretation:

From survey of 100 respondents it can be seen that more of respondents are aware of mutual
funds. 80% of respondents are aware of mutual and rest 20% are not having knowledge of
mutual fund investment.

60
6) From where you come to know about mutual fund?
A) Television
B) Newspaper
C) Internet
D) Friends and Relatives

Category No of respondents Percentages %

Television 45 45
Newspaper 12 12
Internet 24 24
Friends and relatives 19 19
TOTAL 100 100

50
45
40
35
30
Percentage

25
20
15
10
5
0
Television Newspaper Internet Friends and relatives

Interpretation:

From above table it can be seen that television creates more awareness about mutual funds
45% of respondents came to know about mutual funds from TV. 24% of respondents said
that they come to know about it from internet and 19% of respondents come to know from
their friends and relatives. Only 12% of respondents are being aware by newspaper.

61
7) Are you interested in investing your money in mutual funds?
A) Yes
B) No

Category No of respondents Percentages %

Yes 76 76
No 24 24
TOTAL 100 100

Investment in MF

24%

Yes
No

76%

Interpretation:

Out of 100 respondents 76% of them are more interested in investing money in mutual funds
and rest 24% of them are not interested in investing their money in mutual funds.

62
8) Do you think mutual funds are a good investment plan?
A) YES
B) NO

Category No of respondents Percentages %

Yes 78 78
No 22 22
TOTAL 100 100

No. of respondent

No
22%

Yes
78%

Interpretation:

From above given table it can be seen that more people thinks that mutual fund is a good
investment plan. 78% of them things that it is a good investment plan and remaining 22%
thinks that it is not.

63
9) Have you ever invested money in mutual fund?
A) Yes
B) No

Category No of respondents Percentages %

Yes 48 48
No 52 52
TOTAL 100 100

No. of respondents

Yes
No
48%
52%

Interpretation:

Out of 100 respondents 48% of them have invested their money in mutual funds and rest
52% of them are not interested in investing their money in mutual funds.

64
65
10) If no, which factor prevents you to invest in mutual funds?
A) Past bitter experience
B) Lack of knowledge
C) Lack confidence in service being provided
D) Risk

Category No of respondents Percentages %

Past bitter experience 30 30
Lack of knowledge 34 34
Lack confidence in service 14 14
being provided
Risk 22 22
TOTAL 100 100

Factors

22% Past bitter experience

30%
Lack of knowledge
Lack confidence in service
being provided
Risk
14%

34%

Interpretation:

From above table it can be said that 30% of individuals are not ready to invest in mutual
funds because of past bitter experience with the management. 34% of them haven’t invested
because of lack of knowledge of mutual funds. 14% have issue regarding service provided
by the management and last 22% have fear of risk involved.

66
11) From where you purchase mutual fund?
A) Directly from Asset Management Companies
B) Through agents
C) Banks
D) Others

Category No of respondents Percentages %

Directly from AMC 26 26
Through agents 21 21
Banks 40 40
Others 13 13
TOTAL 100 100

Intermediaries
Directly from AMC Through agents
Banks Others

13%
26%

40%
21%

Interpretation:

It can be seen from above that mostly people buy mutual funds units from banks & 26% of
them rely on AMC for purchases of units. 21% buys mutual funds through agent help and
rest 13%buys from other sources.

67
12) In which AMC you prefer to purchase mutual funds?
A) SBIMF
B) Reliance
C) UTI
D) ICICI
E) Others

Category No of respondents Percentages %

SBIMF 36 36
Reliance 08 08
UTI 23 23
ICICI 09 09
Others 24 24
TOTAL 100 100

AMC
40
35
30
25
20
15
10
5
0
SBIMF Reliance UTI ICICI Others

Interpretation:

Mostly people prefer SBIMF for purchases of mutual funds. i.e. 36% of people UTI covers
23% shares and 24% comes in other section 9% from ICICI & 8% from Reliance mutual
funds.

68
13) While investing your money in mutual funds which factor you
consider most?
A) Liquidity
B) Low risk
C) High return
D) Companies reputation

Category No of respondents Percentages %

Liquidity 29 29
Low risk 22 22
High return 35 35
Companies reputation 14 14
TOTAL 100 100

Factors

Companies reputation
14%
Liquidity
29%

High return
35%
Low risk
22%

Interpretation:

High return in mutual funds are one of the main factor while investing in mutual funds i.e.
35% and 29% is for liquidity similarly 22% is for low Risk and 14% for companies
goodwill.

69
14) Which feature of mutual funds attracts you more?
A) Diversification

B) Better return and safety

C) Regular returns

D) Tax benefits

Category No of respondents Percentages %

Diversification 21 21
Better return and safety 32 32
Regular returns 19 19
Tax benefits 28 28
TOTAL 100 100

Features

21%
28% Diversification
Better return and safety
Regular returns
Tax benefits

19% 32%

Interpretation:

Better return and safety of investment is one of the important features which attracts 32% of
people and 28% is of tax benefits. 21% of respondents like diversification and lastly 19% is
for regular return.

70
15) How do you rate mutual funds as a investment option?
A) High

B) Medium

C) Low

Category No of respondents Percentages %

High 30 30
Medium 43 43
Low 27 27
TOTAL 100 100

No. of respondents
High Medium Low
27% 30%

43%

Interpretation:

From above it can be seen that 43% of people thinks that medium option. 30% of them feels
that it is high and rest 27% consider it as low investment plan.

71
16) Which investment scheme you prefer for investment?
A) Balanced
B) Debts
C) Open ended
D) Mid cap
E) Large cap
F) Others

Category No of respondents Percentages %

Balanced 30 30
Debts 09 09
Open ended 18 18
Mid cap 13 13
Large cap 23 23
Others 07 07
100 100

Schemes
7%
Balanced
30% Debts
23% Open ended
Mid cap
Large cap
Others
13% 9%

18%

Interpretation:

Large cap investment plan covers 30% of respondents 23% is for balanced investments ,
18% is for open ended , 13% is for mid cap , 09 % is for debts funds & 07 % falls in others
category.

72
 Chapter no. 5

5.1 Findings:
5.2 Conclusion:
5.3 Suggestion

73
 5.1 Findings:

• It is found from the analysis that maximum of the male respondents have invested their
money through mutual funds.
• It is stated from the analysis that maximum of the respondents belong to 20-25 years.
• It is followed from the analysis that maximum of the investors are salaried people.
• It is known from the analysis that maximum of the investors are earning below Rs 30,000
Pm.

• It is observed from the analysis that 35% of the investors have invested their money
through mutual fund for the reason of Higher returns when compared to other avenues.
• It is inferred from the analysis that maximum of the investors have invested their money
through both the private and public type of mutual fund. .
• It is cleared from the analysis that maximum of the respondents are facing problem of lack
of knowledge about mutual fund. .

74
 5.2 Conclusion:

The objective which is set to be study the investors perception towards mutual funds in
Mumbai as per the sample size and test which is applied to the study, found that investors
are investing their money in mutual funds because of better return and safety of capital

The awareness levels of mutual funds are high because of Television. TV helps the
investors to educate about mutual funds more as compared to others modes of advertisement

It is identified from the analysis that 30% investors are selected balanced type of schemes.

It is revealed from the analysis that maximum of the investors’ opinion is moderate risk in
mutual fund

It is found from the study that more of respondents have purchased mutual funds through
SBIMF.

75
 5.3 SUGGESTIONS
After a thorough study and analysis of the data and information, the following are the few
recommendations and suggestions, if adopted, would definitely benefit the financial market,
which is in its booming stage, in the short run and in the long run as well. Recommendations
and suggestions are normally given when there are some problems or difficulties lying in the
market. Here in this research report my recommendations and suggestions are totally based
on the facts, reactions, attitudes, perceptions, and many other things of the respondents
which I have received from them during my research work. Followings are my suggestion
on mutual fund

1. Market Development
2. Handsome incentive
3. Marketing plans

1 Market development

Market development Market development means doing anything and everything for the
growth of the mutual fund industry. Hence in the following ways the market of mutual fund
can be developed more significantly:

 Conference or seminars on mutual funds‖ can be conducted on regular basis. This will no
doubt increase the awareness of mutual fund in the minds of the investors.
 All the companies must join hands and work together for this.
 Government must also work together with the mutual fund companies in promoting the
concept of mutual fund.

2 Handsome incentives:

Push selling of mutual funds products must be stressed on. This push selling must be done
through agents and financial planners. Handsome incentives and commission will no doubt
motivate them to push sell the mutual funds.

3 Marketing plans:

Booklets on mutual funds can be distributed at free of cost to the common people with the
newspapers, magazines, journals. This will help in attitude formation of the investors.

76
 BIBLIOGRAPHY

BOOKS REFERRED

Financial management SYBAF SEM 04

WEBLOGRAPHY

o Web site – www.slideshare.com

o Web site – www.investopedia.com
o Web site – www.wikipedia.com
o Web site – www.scribd.com
o Web site – www.researchgate.net
o Web site – www.thesij.com

77
 ANNXURE:

1. Age
A) 20-25
B) 26-30
C) 31-35
D) Above 35
2. Occupation
A) Profession
B) Self-service
C) Salaried person
D) Retired person
3. Gender
A) Male
B) Female
4. Salary
A) Above 30,000
B) Below 30,000
5. Are you aware about mutual fund?
A) Yes
B) No
6. From where you come to know about mutual fund?
A) Television
B) Newspaper
C) Internet
D) Friends and relatives
7. Are you interested in investing your money in mutual funds?
A) Yes
B) No
8. Do you think mutual funds is a good investing plan?
A) Yes
B) No
9. Have you ever invested money is mutual fund?
A) Yes
B) No
10. If no, which factor prevents you to invest in mutual fund?
A) Past bitter experience
B) Lack of knowledge
C) Lack confidence in service being provided
D) Risk

78
11. From where you purchase mutual fund?
A) Directly from Asset Management Companies
B) Through agents
C) Banks
D) Other
12. In which AMV you prefer to purchase mutual funds?
A) SBIMF
B) Reliance
C) UTI
D) ICICI
E) Others
13. While investing your money in mutual funds which factor you consider most?
A) Liquidity
B) Low risk
C) High return
D) Companies reputation
14. Which features of mutual funds attract you more?
A) Diversification
B) Better returns and safety
C) Regular returns
D) Tax benefits
15. How do you rate mutual funds as a investment option?
A) High
B) Medium
C) Low
16. Which investment scheme you prefer for investment?
A) Balanced
B) Debts
C) Open ended
D) Mid cap
E) Large cap
F) Other

79