UNIVERSITY OF MUMBAI

PROJECT REPORT

ON

“A STUDY ON CONSUMER PREFERENCE TOWARDS

MUTUAL FUND”

SUBMITTED BY

ANKITA LAXMINARAYANA AKENI

THE AWARD OF THE DEGREE OF

BACHELOR OF ACCOUNTS & FINANCE (BAF) SEM-VI

EXAMINATION NO: -

ACADEMIC YEAR 2022-2023

GUIDED BY

PROF. ZARMIN MOMIN

PADMASHRI ANNASAHEB JADHAV BHARATIYA SAMAJ UNNATI

MANDAL’S

B.N.N. COLLEGE, BHIWANDI

DIST. THANE 421302

 DECLARATION

I Miss. ANKITA LAXMINARAYANA AKENI, Exam No:

Student of B. N. N College, Bhiwandi of T.Y.B. Com
(BACHELOR OF ACCOUNTS & FINANCE), Semester VI, hereby
declare that I have completed project on “A STUDY ON
CONSUMER PREFERENCE TOWARDS MUTUAL FUND” is a
record of independent research work carried by me during the
academic year 2022-2023 under the guidance of
PROF. ZARMIN MOMIN.
The information submitted is true and original to the best of my
knowledge.

ANKITA LAXMINARAYANA AKENI

 BACHELOR OF ACCOUNTS & FINANCE (BAF)

SELF-FUNDED COURSES
“A” NAAC Accredited

CERTIFICATE

This is to certify That Miss. ANKITA LAXMINARAYANA

AKENI, Exam No.: Of T.Y.B. Com (BACHELOR OF
ACCOUNTS & FINANCE), B.N.N College, Semester VI (Academic
Year 2022-2023) has successfully completed the project entitled “A
STUDY ON CONSUMER PREFERENCE TOWARDS
MUTUAL FUND” and submitted the project report in partial
fulfilment of the requirement for the award Of the Degree of
BACHELOR OF ACCOUNTS & FINANCE, of University of
Mumbai.

Prof. Zarmin Momin Dr. Dr. Ashok. D.Wagh

(Project Guide) (Co-ordinator) (Principal)

Examiner: -

Date: -

College Seal
 ACKNOWLEGMENT

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. Ashok D. Wagh for providing
the necessary facilities required for completion of this project. I take this opportunity
to thank our Co-ordinator Dr......................for her moral support and guidance. I
would also like to express my sincere gratitude towards my project guide
Prof. Zarmin Momin whose guidance and care made the project successful.
I would like to thank my College Nirlon Library, for having provided various
reference books and magazines related to my project.

Lastly, I would like to thank each person who directly or indirectly helped me in
the completion of the project especially my parents and peers who supported me
throughout my project.

ANKITA LAXMINARAYANA AKENI

 ABSTRACT
Mutual Fund is a retail product designed to target small investors, salaried people and others
who are intimidated by the mysteries of stock market but, nevertheless, like to reap the
benefits of stock market investing. At the retail level, investors are unique and are a highly
heterogeneous group. Hence, their fund/scheme selection also widely differs. Investors
demand inter-temporal wealth shifting as he or she progresses through the life cycle. This
necessitates the Asset Management Companies (AMCs) to understand the fund/scheme
selection/switching behaviour of the investors to design suitable products to meet the
changing financial needs of the investors. With this background a survey was conducted
among 200 Mutual Fund Investors in Dehradun city to study the factors influencing the
fund/scheme selection behaviour of Retail Investors. This paper discusses the survey
findings. It is hoped that it will have some useful managerial implication for the AMCs in
their product designing and marketing. Now mutual fund industry is facing competition not
only from within the industry but also from other financial products that may provide many
of the same economic functions as mutual funds but are not strictly MFs, and in this research
project it is discussed which financial product customer like most and the reason why an
investor wants that financial product and the reason found with the help of the survey
conducted.
The Indian capital market has been growing tremendously with the reforms of the industrial
policy, reform of public sector and financial sector and new economic policies of
liberalization, deregulation and restructuring. The Indian economy has opened up and many
developments have been taking place in the Indian capital and money market with the help of
financial institutions or intermediaries which foster savings and channel them to their most
efficient use. One such financial intermediary who has played a significant role in the
development and growth of capital market is Mutual Fund (MF). Mutual Funds are best
alternative for those who do not have much knowledge about how to trade in capital market.
Share is an ownership unit in corporation. The main feature of common or preferred stock is
their liquidity and growth potential. In the past, investment avenues were limited to real
estate, gold, schemes of post office and banks. At present, a wide variety of investment
avenues are open to the investors to suit their needs and nature. The required level of return
and risk tolerance level decide the choice of the investor. This paper deals with investors’
preference towards Mutual Funds and equity shares. This paper also covers the most
important attribute for investment consideration, the purpose of investment, type of Mutual
Fund preferred, preferred mode of investment (SIP/ one time investment) for mutual funds
and preferred mode of trading in case of investment in equity shares.
 INTRODUCTION
A mutual fund is a pool of money that is managed on behalf of investors by a
professional money manager. The manager uses the money to buy stocks, bonds or
other securities according to specific investment objectives that have been
established for the fund. In return for putting money into the fund, you’ll receive
either units or shares that represent your proportionate share of the pool of fund
assets. In return for administering the fund and managing its investment portfolio,
the fund manager charges fees based on the value of the fund’s assets. A mutual
fund, by its very nature, is diversified -- its assets are invested in many different
securities. Beyond that, there are many different types of mutual funds with
different objectives and levels of growth potential, furthering your chances to
diversify. Hence, a mutual fund can be defined as a trust that pools the savings of a
number of investors who share a common goal. The money thus collected is then
invested by the fund manager on behalf of the investors in different types of
securities. The income earned through these investments and the capital
appreciated realized by the scheme are shared by its unit holders in proportion to
the number of units owned by them. Mutual Funds and securities investments are
subject to market risks and there can be no assurance that the objectives of the
mutual fund will be achieved.
Investing in various types of assets is an interesting activity that attracts people
from all walks of life irrespective of their occupation, economic status, education
and family background. When a person has more money than he requires for
current consumption, he would be coined as a potential investor. The investor who
is having extra cash could invest it in securities or in any other assets like gold or
real estate or could simply deposit it in his bank account. The companies that have
extra income may like to invest their money in the extension of the existing firm or
undertake new venture. All of these activities in a broader sense mean investment.
The investment alternatives range from financial securities to traditional non-
security investments. The financial securities may be negotiable or non-negotiable.
The negotiable securities are those financial securities which are transferable. The
negotiable securities may yield variable income or fixed income. Securities like
equity shares fall under variable income group as income generated, depends upon
the dividend distributed by these companies from the profit it makes. Bonds,
debentures, Indira Vikas Patras, Kisan Vikas Patras, Government securities and
money market securities yield a fixed income. The non-negotiable financial
investment, as the name suggests, is not transferable. This is also known as non-
securitized financial investments. Deposit schemes offered by the post offices,
banks, companies, and non-banking financial companies are of this category. The
tax-sheltered schemes such as public provident fund, national savings certificate
and national
savings scheme are also non-securitized financial investments. Mutual fund is
another investment alternative. It is of recent origin in India. Within a short span
of time several financial institutions and banks have floated varieties of mutual
funds. The investors with limited funds can invest in the mutual funds and can
have the benefits of the stock market and money market investments as specified
by the particular fund. Real assets like gold, silver, arts, property and antiques
always find a place in the portfolio. The advent of mutual funds in India can be
traced back to the year 1964 when unit trust of India was incorporated as Statuary
Corporation however; the UTI‟s monopoly came to an end in 1987, when
government amended the banking regulation Act to permit commercial banks in
the public sector to set up mutual funds. The SBI was the first bank to promote a
mutual fund called “SBI Mutual Fund” in July 1987.The government permitted
insurance corporations in the public sector to join the mutual fund. (Bhatia B.S.&
Batra G.S.1997) Share is an ownership unit in corporation. The main features of
common or preferred stock is their liquidity and growth potential. Shares of stock
can increase in value as a positive contribution to the wealth building process but
can also be sold quickly if rupees are needed. This liquidity feature is usually true
of only publicly traded companies (i.e., those companies whose shares are held by
many thousand or hundreds of thousands of shareholders). These shares are
typically bought and sold each day. (Gable Ronald C.1983) In the above context it
is the need of hour to study investors preference towards investment in shares and
mutual funds
Vijayakumar (2015) has studied on Investor’s preference in equity market investments in
India with special reference to Chennai. A sample of 200 investors has been taken for this
study. The main focus of this study is to find the relationship between investors‟ preference
and satisfaction and to identify the investors‟ preference in equity investment. This study
concluded that the nine factors namely security, risk tolerance, lucrative returns, investment
duration, periodic returns, share performance, long- term investment, futuristic returns and
investment dynamics influence the investors‟ perception at various level and ultimately leads
them to satisfaction. It is concluded that the safety in the equity investment is very important
for investors to acquire the highest satisfaction. Kothari (2014) examined a study namely
“Investment behaviour Towards investment Avenues: A study with reference to Indore City.
The study highlighted that the savings of the people invested in assets depending on their risk
and return demands, safety of money, liquidity, the available avenues for investment, various
financial institutions etc. Descriptive research design is carried out to describe the phenomena
with a sample size of 100. It was collected from the respondent through convenient
judgmental sampling method in Indore city. The author concluded that if younger generation
starts investing at such an early stage on regular basis, they will able to save more for their
future Pandian et al. (2013) has studied on Investors Preference towards various Investment
avenues in Dehradun district. The objective of the study is to analyse the investor’s
preference towards various investment avenues in Dehradun district and offer Suitable
suggestions to promote investments. He investigated 120 respondents. The data are analysed
by adopting the Chi-Square test and Ranking method. The study reveals that 73.33% of the
respondents are male. So, it is inferred that most of the investment decisions are taken by
male respondents only. Age is an important factor which influences the behaviour of the
individual investor and the investing ability also differs according to the age of investors.
Most of the investors are in the age group between 25 to 35 years. It is clear that young
investor prefers to invest and take more risk. Singh (2012) conducted 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. In order
to conduct this study, 250 investors‟ in Ranchi region have been selected. For measuring
various phenomena and analysing the collected data effectively and efficiently for drawing
sound conclusions, Chi-square test has been used and for analysing the various factors
responsible for investment in mutual funds, ranking was done on the basis of weighted scores
and scoring was also done on the basis of scale. During the study, it was found that the
investors‟ basically invested in mutual funds due to high return potential, transparency,
liquidity, flexibility and affordability. Geeta N. and Ramesh M. (2011) in their study on
People’s Preferences in investment Behaviour examined people’s choice in investment
avenues in Kurumbalur town. The sample size of 200 was taken for the research work.
Simple random sampling was used to select the respondents from available database. Data
was analysed using chi-square test and percentage analysis. Researchers concluded that there
is significant relation between
investment avenues and gender and age group. There is no significant relationship between
investment avenues and education and occupation. They concluded that Kurumbalur
respondents are medium aware about various investment choices. Santi Swarup. K, (2009), in
his survey entitled, “Measures for Improving Common Investor Confidence in Indian
Primary Market: A Survey”, analysed the decisions taken by the investors while investing in
primary markets in the first part: secondly the factors affecting primary market situation in
India was analysed and finally the survey evaluates various revival measures available for
improving investor confidence. The survey was conducted in 10 cities in India by mailing
questionnaire. The survey results of 367 investors revealed that the investors give importance
to own analysis and market price as compared to broker’s advice. Sholapur. M.R. and A B
Kuchanur, (2008), in their article, “Identifying perceptions and perceptual Gaps: A study on
individual investors in selected investment avenues”, investors hold different perceptions on
liquidity, profitability, collateral quality, statutory protection, etc., for various investment
avenues. In addition, they fix their own priorities for these perceptions. The formation of
perceptions triggers the investment process in its own way, often leading to unrealistic
apprehensions especially among individual investors. This study attempts to measure the
degree of investors‟ agreeableness with the selected perceptions as well as to trace the gaps
between their perceptions and the underlying realities. Failure to deal with these gaps tends
to lead the investment clientele to a wrong direction. Hence, there is a need to help investors
develop a realistic perspective of the investment avenues and their attributes. Ranganathan K.
(2006) conducted a study on “Fund Selection Behaviour of Individual Investors towards
Mutual Funds”. This exploratory study is an attempt to understand the financial behaviour of
mutual fund investors in connection with scheme preference and selection. A sample of 100
educated, geographically dispersed individual investors from Mumbai city, was taken for this
study. The statistical tools used for this research is chisquare test, factor analysis and
multinomial logistic regression (MLR). It is concluded during the study that MF scheme
preference for majority of investors, is „Growth scheme‟. Income schemes have been
unattractive due to dropping interest rates. Analysis of scheme preference by nature of
operation reveals the popularity of „Open ended scheme‟. Top of Mind recall test of mutual
funds reveals that UTI was most promptly remembered among the investors. The number of
respondents who have good awareness level of mutual funds results to 53%. This could be
attributed to the wide publicity given to MF industry for varied reasons. Agent training
programs and investor education programs organized by AMFI at regional levels during
2003-04 could also have contributed to this level of awareness.
 RESEARCH METHODOLOGY
The objective of Paper: To understand the factors influencing ethical mutual buying
behaviour
To understand the Socially Responsible Mutual Fund (SRI)
Type of Research Design:
Conclusive Research Design > Descriptive Research > Cross–Sectional Research > Single
Sample
Sampling Design: Target Population: Bartoli Sample Frame: People above 20 years,
investing in mutual fund Sample Size: 100 Sampling Method: Convenience Sampling Types
of Data: Primary Data: Structured Questioner was used to collect data from different
investors. Secondary Data: through Online Data

Fig. 2 Male and Female ratio

Fig. 3 Different age group frequency

Fig. 4 Different occupation sector frequency

Fig. 5 Different income level frequency

Fig. 6 Risk attitude towards Mutual Fund

Fig. 7 Different types of well-known Mutual funds

Fig. 8 Awareness towards SRI Mutual funds

Fig. 9 Buying behaviour towards value

A mutual fund is an open-end investment fund that is managed professionally that pools money
from many investors to purchase securities. Mutual funds are the major proportion of equity in
U.S. corporations. The term is mostly used in the United States of America, Canada, and India,
while similar structures like SICAV which is an investment company with variable capital in
Europe and open-ended investment company (OEIC) in the UK are found. Mutual fund
investors are retail or may be institutional in nature. Primary structures of mutual funds are
open-end funds, unit investment trusts, closed-end funds and exchange-traded funds (ETFs)
Mutual funds are often categorized by their principal investments as money market funds, bond
or fixed income funds, stock or equity funds, hybrid funds, or other. Mutual funds can also be
categorized as index funds, which are actively managed funds or passively managed funds that
match the performance of an index. Hedge funds are not classified as mutual funds because
hedge funds cannot be sold to the general public. Mutual funds have advantages and
disadvantages compared to direct investing in individual securities.

II. OBJECTIVE:  This study is conducted to analyze the study and performance of various
mutual funds in the industry and also to analyze the preference and awareness of the customer
about the mutual funds.

III. RESEARCH METHODOLOGY:

Research design.

With respect to the research objectives mentioned the following research design has been
adopted..

Sampling design:

Secondary data sources were used of the analysis of the Mutual fund schemes performance.

The sample size taken is of 50 people from the 3 cities of India viz Bangalore, kolar and
tirupati. 21 respondents are from kolar, 13 from Bangalore and remaining 16 from tirupati.

Sampling technique: Random sampling technique.

Sampling unit: Individual investors who have already invested their money into mutual funds
and are willing to invest their funds in various mutual fund schemes are considered as sampling
unit

Sampling area: Karnataka and Andhra Pradesh

Methods of data collection

A detailed structured questionnaire was prepared and distributed among the respondents
(investors), from the selected cities of Agra, Mathura and Mumbai. Structured questionnaire
was utilized for data collection. With the help of questionnaire and face to face interaction with
the respondents were performed. Sometimes many respondents were facing the various kinds of
difficulties for filling the questionnaire so the face to face interaction was involved.
In order to understand this study analyzed,the investors preference for investing in mutual fund
or schemes.

 The various trends and regulatory measures governing the mutual fund companies. 

Evaluated the performance of mutual fund schemes of selected companies. T

IV. Review of literature

A detailed structured questionnaire was prepared and distributed among the respondents
(investors), from the selected cities of Agra, Mathura and Mumbai. Structured questionnaire
was utilized for data collection. With the help of questionnaire and face to face interaction with
the respondents were performed. Sometimes many respondents were facing the various kinds of
difficulties for filling the questionnaire so the face to face interaction was involved.

In order to understand this study analyzed,the investors preference for investing in mutual
fund or schemes.

IV. Review of literature

Rasheed Haroon, Qadeer Abdul (2012) in their study investigates the performance of
survivorship biased twenty five open ended mutual fund schemes in Pakistan and managers
ability of stock selection and also measured the diversification. The study revealed that overall
performance of the funds remains best as compare to market but mismanagement observed in
mutual fund industry during the study period. Further study also revealed that portfolio was not
completely diversified and contains unsystematic risk

(Chaubey, 2015) Friend, et al., (1962) made an extensive and systematic study of 152
mutual funds in USA and found that mutual fund schemes earned an average annual return of
12.4 percent, while their composite benchmark earned a return of 12.6 percent. Their alpha was
negative with 20 basis points. Overall results did not suggest widespread inefficiency in the
industry. Comparison of fund returns with turnover and expense categories did not reveal a
strong relationship.

Nishant Patel (2011) in his study examined fund sensitivity to the market fluctuations in term
of Beta and found that the risk and return of mutual funds schemes were not in conformity with
their stated investment objectives (tariq zafar, 2012). Further sample schemes were not found to
be adequately diversified; Kundu Abhijit (2009) In his study examines the fund manager’s
ability to outperform the market and to appraise the schemes in india. The study finds that in the
context of ex-post risk, return and diversification and found that over ‘the period’ mutual fund
schemes on an average have failed to outperform the market even after taking a risk higher than
that of the market and concluded that fund manager though has succeeded to some extent on the
diversification front, but failed to earn significant positive returns by selecting miss-valued
securities in their portfolios.
 Irwin, Brown, FE (1965) analyzed issues relating to investment policy, portfolio turnover
rate, performance of mutual funds and its impact on the stock markets in New york. They
identified that mutual funds had a significant impact on the price movement in the stock market.
They concluded that, on an average, funds did not perform better than the composite markets
and there was no persistent relationship between portfolio turnover and fund performance
(brown, 1965)Treynor and Mazuy (1966) evaluated the performance of 57 fund managers in
new York in terms of their market timing abilities and found that, fund managers had not
successfully outguessed the market. The results suggested that, investors were completely
dependent on fluctuations in the market. Improvement in the rates of return was due to the fund
managers’ ability to identify underpriced industries and companies. The study adopted
Treynor’s (1965) methodology for reviewing the performance of mutual fund (treynor, 1966).

Jensen (1968) developed a composite portfolio evaluation technique concerning risk-adjusted

returns. He evaluated the ability of 115 fund managers in selecting securities during the period
1945-66 in New York. Analysis of net returns indicated that, 39 funds had above average
returns, while 76 funds yielded abnormally poor returns. Using gross returns, 48 funds showed
above average results and 67 funds below average results. Jensen concluded that, there was very
little evidence that funds were able to perform significantly better than expected as fund
managers were not able to forecast securities price movements (jensen, 1967).

Fama (1972) developed methods to distinguish observed return due to the ability to pick up
the best securities at a given level of risk from that of predictions of price movements in the
American market. He introduced a multipored model allowing evaluation on a period-by-period
and on a cumulative basis. He concluded that, return on a portfolio constitutes of return for
security selection and return for bearing risk. His contributions combined the concepts from
modern theories of portfolio selection and capital market equilibrium with more traditional
concepts of good portfolio management (FAMA, 1972).

Shashikant Uma (1993) critically examined the rationale and relevance of mutual fund
operations in Indian Money Markets. She pointed out that money market mutual funds with
low-risk and low return offered conservative investors a reliable investment avenue for short-
term investment (shashikant, 1993).

Shukla and Singh (1994) attempted to identify whether portfolio manager’s professional
education brought out superior performance in India. They found that equity mutual funds
managed by professionally qualified managers were riskier but better diversified than the others.
Though the performance differences were not statistically significant, the three professionally
qualified fund managers reviewed outperformed others (singh, 1994)

Gupta and Sehgal (1997) evaluated investment performance for the period 1992 to 1996 in
Vashi, Mumbai. Aspects of Mutual fund such as fund diversification, consistency of
performance, consistency between risk measures, fund objectives and risk return relation in
general were studied. For the study 80 mutual fund schemes of private and public sector were
taken. Out of 80 schemes, 54 were close-ended and the 26 were open-ended. Results showed
that income growth schemes were the best performers with mean weekly returns of .0087
against mean weekly returns from income growth schemes of .0021 and .0023 respectively. LIC
 Dhansahyog, Reliance growth and Birla Income Plus were the best income growth and growth
income schemes respectively (Gupta O P and Sehgal, 1998.

V. Framing of research hypothesis

The hypotheses framed for the study are as follows:

HO1: Occupation and the attitude towards mutual funds do not have any relationship.

HO2: Age and the attitude towards mutual funds do not have any relationship.

HO3: Educational qualification and the attitude towards mutual funds do not have any
relationship.

VI. DATA ANALYSIS AND INTERPRETATION:

Data analysis was done with the help of Statistical Package for Social Science and the
following are the findings of our research

VII. FINDINGS

4.1 Research outcome and findings 

50 % of the respondents have an actual knowledge about mutual funds whereas majority of
them have good knowledge.

 The respondents don’t know about the technical terms like entry load, open ended but they
have a basic understanding of mutual funds.

 Balanced and Dividend Schemes awareness level is less among the respondents as
compared to income and growth schemes.

 Investments in mutual funds have some advantages which the respondents are aware of.

 The people who influence the investors in investing in mutual funds are agents, relatives
and people.

 People belonging to urban area invest more on mutual funds because of the awareness that
they have.

 The preference in the investments of various funds is seen in younger age group.

 Investors irrespective of their qualifications consider many factors while investing in

mutual funds.
 VIII. SUGGESTIONS:

 An investor should learn to make decisions regarding the monitoring and the selection of
the Mutual funds.

 Regardless of whether you are a do-it-yourselfer, utilize a speculation proficient, or are a

member in a selfco ordinated retirement plan, being sensibly acquainted with the ABCs of a
mutual fund is a significant contributing ability.

 Regardless of whether you don't have every one of the responses to the inquiries
encompassing effective investing in funds, you ought to in any event be outfitted with adequate
expertise to make clever inquiries.

 With the industry of mutual fund developing, there are, for some financial specialists, just
an excessive number of decisions.

 The issue of decision is additionally confounded by a data over-burden, which expects

financial specialists to deal with what is decent to know and what they have to know.
 IX. CONCLUSION

 UTI still holds the maximum share but since 2021-22, the focus has been shifted to the
private mutual funds.

 HDFC mutual fund, Reliance mutual fund and Franklin Templeton India are making their
mark in private sector.

 Growth schemes are most popular among other schemes.  Open ended schemes are more
against the various close ended schemes.

 First preference is given to high returns for choosing mutual funds and then safety comes at
the second rank and reliability at the third.

 High returns attract the people so they invest in equity schemes and then comes balanced
schemes and then finally comes the debt schemes.

 Proper disclosure of information affects the choices of the respondents and the fluctuations
in market also affect the investors.

 Return earned and NAV are the best factors for evaluating performance.

 It is not necessary the better performance is given by the funds which are big in sizes. 
Past record of the association is an extremely noteworthy factor for putting resources into
mutual fund.

 Development prospects are another factor which is noteworthy for the financial specialists
to put resources into open part and private area shared reserve schemes.

 Credit scores by various rating score offices are a critical factor which impacts the view of
financial specialists.

 Market vacillations altogether impact the financial specialists for venture choices. 
Portfolio determination and choosing the kinds of securities is an extremely noteworthy
foundation for making a decision about the execution of shared assets.

 Small investors are most appropriate for investing in mutual funds.

 Higher duty yields are required for empowering the interest in shared assets

REFERENCES

[1] FRIEND. (1962), a Study of Mutual Funds, U.S. Securities and Exchange Commission,
USA: U.S. Securities and Exchange Commission.

[2] The Mutual Fund Industry and Its Comparative Performance. Journal of Financial and
Quantitative Analysis
. [3] Brown, i. (1965). A Study of Mutual Funds: Investment Policy and Investment Company
Performance. Elements of Investments, 43(1), 63-75

A Mutual Fund is an investment vehicle that pools funds from various buyers and invests the
funds in stocks, bonds, short-term money-market instruments, other securities or assets or some
combination of these investments and for decisions like Investment are taken carefully by
finance and fund managers after sound research and the decisions will be in the significance of
the unit holders. In simple words Mutual funds are financial institutions that pool money from
different sources like persons or institutions by issuing 'units', making them invest on their
behalf with predetermined investment aim and help to manage the same for

professional fee. They like to invest the money among various types of financial vehicle
generally falling into two types - equity and debt. people and financial institutions have no
doubt, can and do invest in equity and debt instruments by themselves but this requires lot of
time , knowledge and skill on both of which are the major constraints. That s why Mutual funds
become as professional financial instrument bridging the skill and time.Mutual funds
organisation consists of a team of expertise who are well enough identify both people and right
stocks and debt instruments and so that they can construct a strong portfolio that assures to give
the good possible returns at min a very minimum possible low cost. In this regard it also
includes outsourcing money of management.

Mutual Fund obtains the money of individual people with specific certain investment target. The
money put in several securities depending on the aims and motives of the mutual fund plan and
the loss or profit that are shared among buyers or investors’ in regards to their individual
investment.Securitiesinvestments are widelyspread across the various industries and sectors. In
addition to this Diversification alsoreduces the riskinvolved since every stock may or may not
move in the equal or samedirection in at the same time in same proportion. Mutual fund
challenges and issues units to the buyers or investors as in accordance with quantum of certain
money invested by him or her. Buyers of mutual funds are generally called as unit holders. The
losses or profitsare equally shared by the investors’ in equal proportion for their investment. The
mutual funds have generally come out with a various types of schemes with various different
investment goals which are introduced from period to period . Every mutual fund is supposed to
be registered with (SEBI) which is the one regulates securities markets before it begins to
collect funds from the general public.

Mutual Funds industry started in India in a small way with the UTI Act creating what was
effectively a small savings division within the RBI. Over a period of 25 years this grew fairly
successfully and gave investors a good return and therefore in 1989, as the next logical step,
public sector banks and financial institutions were allowed to float Mutual Funds and their
success emboldened the government to allow the private sector to foray into this area. The
initial years of the industry also saw the emerging years of the Indian equity market, when a
number of mistakes were made and hence the Mutual Funds schemes, which invested in lesser-
known stocks and at very high levels, became loss leaders for retail investors. From those days
to today the retail investor, for who the Mutual Funds is actually intended, has not yet returned
to the industry in a big way. But to be fair, the industry too has focused on bringing in the large
investor, so that it can create a significant base corpus, which can make the retail investor feel
more secure. Mutual Funds 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.

Mutual Funds play a vital role in resources allocation and their efficient allocation throughout
the world. These funds played a significant role in financial intermediation, development of
capital market and the growth of corporate sector as a whole. The active involvement of Mutual
Funds in economic development can be seen by their dominant presence in the money and
capital market of the world. The growth of the Mutual Funds industry is increasing at a
tremendous rate

A mutual fund is made from money pooled in by a large number of investors. This pooled
money is then managed by a professional fund manager, who as per his investment skills invests
the money in various financial instruments. So all the investors then hold units which are
representing their portion of the investment. So they are also known as a unitholder. As a

unitholder, they are entitled to profit/loss after deducting appropriate charges/taxes which are
generated from investment activity (Capelle et al. 2014).

A. Role Of Mutual Fund In the 21st Century The Indian mutual fund industry has shown
relatively slow growth in the period FY 10-13 growing at a CAGR of approximately 3.2
percent. Average (AUM) stood at ~INR 8,140 billion as of September 2013. However, AUM
increased to ~ INR 8,800 billion as of December 2013

In comparison to global markets, India‟s AUM penetration as a percent of GDP is between 5-6
percent while it is around 77 percent for the U.S., 40 percent for Brazil and 31 percent for South
Africa (Chang et al. (2010).

B. Social Responsible Investing Socially responsible investing (SRI), also known as

sustainable, socially conscious, "green" or ethical investing, is an investment strategy which
seeks to consider both financial return and social good. In general, socially responsible
investors encourage corporate practices that promote environmental stewardship, consumer
protection, human rights, and diversity. Some avoid businesses involved in alcohol, tobacco,
gambling, pornography, weapons, contraception/abortion, fossil fuel production, and/or the
military. The areas of concern recognized by the SRI industry are sometimes summarized as
ESG issues: environment, social justice, and corporate governance (Das, 2013).

Socially responsible investing is based on pillars of shareholders advocacy and community

investing (Amy Domini, Founder, and CEO, Domini Social Investments, LLC). Schueth (2003)
defines socially responsible investing as “the process of integrating personal values and societal
concerns into investment decisions”.

Investors who are attracted to SRI tend to fall into two often complimentary categories: those
who want to feel socially good about their investments and those who are concerned with
effecting social change (Renneboug et al., 2007 and Schueth, 2003). The “feel good” investors,
commit to putting their money to work in a manner that is more closely aligned with their
values to feel better about themselves and their portfolios. The other group commits to putting
their investment capital to work in a way that brings about “social change” and improvements to
the quality of life (Hume and Larkin, 2008).

The criteria for social responsible investment do not have general agreement. Sill Lowry (Social
responsibility promoter) had identified four goals of socially responsible investing (SRI): First
states about encouraging women and minorities hiring, retention, and promotion and their
participation in ownership in corporate America. Second, SRI promotes practices to humanize
the work environment. The third goal of SRI involves rethinking the ways profit has been
traditionally used and distributed. Fourth goal: Convincing the business world that a corporate
conscience can pay. (Hamilton et al. 1993)

A mutual fund is a pool of money that is managed on behalf of investors by a professional

money manager. The manager uses the money to buy stocks, bonds or other securities according
to specific investment objectives that have been established for the fund. In return for putting
money into the fund, you’ll receive either units or shares that represent your proportionate share
of the pool of fund assets. In return for administering the fund and managing its investment
portfolio, the fund manager charges fees based on the value of the fund’s assets. A mutual fund,
by its very nature, is diversified -- its assets are invested in many different securities. Beyond
that, there are many different types of mutual funds with different objectives and levels of
growth potential, furthering your chances to diversify
Hence, a mutual fund can be defined as a trust that pools the savings of a number of investors
who share a common goal. The money thus collected is then invested by the fund manager on
behalf of the investors in different types of securities. The income earned through these
investments and the capital appreciated realized by the scheme are shared by its unit holders in
proportion to the number of units owned by them. Mutual Funds and securities investments are
subject to market risks and there can be no assurance that the objectives of the mutual fund will
be achieved.

A mutual fund is an ideal investment vehicle for today’s complex and modern financial
scenario. Currently there are more than 530 schemes with varied objectives and AMCs compete
against one another by launching new products or repositioning old ones. Now MF industry is
facing competition not only from within the industry but also from other financial products that
may provide many of the same economic functions as mutual funds but are not strictly MFs,
There are many players in the mutual fund industry.

performance before investing in any mutual fund company

Hypothesis 3: Those maximum investors prefer growth in their investment as the objective of
growth fund scheme is to provide capital appreciation over the medium to long-term.

OBJECTIVES

1. What are the reasons while an investor chooses Mutual Fund Company?

2. What different qualities investor looks before selecting a mutual fund company?

3. Which type of scheme generally the investor like the most?

HYPOTHESES

The present research starts with the problem identification, it refers to a detailed understanding
of the customer’s behavior and perception regarding the purchase of mutual fund, and namely
how the residents of Dehradun City engage themselves on going for mutual fund.

Furthermore, the main purpose, the objectives and the hypotheses were established, as follows:
Main purpose: Determining the purchasing behavior of customers underlying characteristics in
terms of mutual funds selection.

Objective 1: Determining reasons while an investor chooses Mutual Fund Company. Hypothesis
1: The investor looks the most company scheme’s performance while selecting the mutual fund
company.

Objective 2: Determining different qualities investor looks before selecting a mutual fund
company.

Hypothesis 2: The investors judge the criteria of selecting any mutual fund company through
their fund performance before investing in any mutual fund company.
Objective 3: Finding out the type of scheme generally the investor like the most.

Hypothesis 3: Those maximum investors prefer growth in their investment as the objective of
growth fund scheme is to provide capital appreciation over the medium to long-term.

ASSUMPTIONS AND LIMITATIONS

It is of prime importance to determine the scope of research by asking you the following
questions: What do I really want to examine? What are the precise characteristics of the entity in
question? Or what exact features make this topic different from other subjects? (Eneroth, 1984).
Having the above questions in mind, the authors want to clarify the scope of research. The study
done seeks to examine and determining the purchasing behavior of customers underlying
characteristics in terms of mutual funds selection.

Investing in various types of assets is an interesting activity that attracts people from all walks
of life irrespective of their occupation, economic status, education and family background.
When a person has more money than he requires for current consumption, he would be coined
as a potential investor. The investor who is having extra cash could invest it in securities or in
any other assets like gold or real estate or could simply deposit it in his bank account. The
companies that have extra income may like to invest their money in the extension of the existing
firm or undertake new venture. All of these activities in a broader sense mean investment. The
investment alternatives range from financial securities to traditional non-security investments.
The financial securities may be negotiable or non-negotiable. The negotiable securities are those
financial securities which are transferable. The negotiable securities may yield variable income
or fixed income. Securities like equity shares fall under variable income group as income
generated, depends upon the dividend distributed by these companies from the profit it makes.
Bonds, debentures, Indira Vikas Patras, Kisan Vikas Patras, Government securities and money
market securities yield a fixed income. The non-negotiable financial investment, as the name
suggests, is not transferable. This is also known as non-securitized financial investments.
Deposit schemes offered by the post offices, banks, companies, and non-banking financial
companies are of this category. The tax-sheltered schemes such as public provident fund,
national savings certificate and national savings scheme are also non-securitized financial
investments. Mutual fund is another investment alternative. It is of recent origin in India. Within
a short span of time several financial institutions and banks have floated varieties of mutual
funds. The investors with limited funds can invest in the mutual funds and can have the benefits
of the stock market and money market investments as specified by the particular fund. Real
assets like gold, silver, arts, property and antiques always find a place in the portfolio.

The advent of mutual funds in India can be traced back to the year 1964 when unit trust of India
was incorporated as Statuary Corporation however; the UTI‟s monopoly came to an end in
1987, when government amended the banking regulation Act to permit commercial banks in the
public sector to set up mutual funds. The SBI was the first bank to promote a mutual fund called
„SBI Mutual Fund‟ in July 1987.The government permitted insurance corporations in the public
sector to join the mutual fund. (Bhatia B.S.& Batra G.S.1997) Share is an ownership unit in
corporation .The main features of common or preferred stock is their liquidity and growth
potential. Shares of stock can increase in value as a positive contribution to the wealth building
process but can also be sold quickly if rupees are needed. This liquidity feature is usually true of
only publicly traded companies (i.e., those companies whose shares are held by many thousand
or hundreds of thousands of shareholders).These shares are typically bought and sold each day.

(Gable Ronald C.1983) In the above context it is the need of hour to study investors‟ preference
towards investment in shares and mutual funds.

About Customer Perception Customer perception refers to the customer's opinion of a company
or its products and services. This describes how the customers feel about a particular brand,
including any direct or indirect interaction they have had with that business. The companies can
find common user pain points by studying customer perception and enhance the customers‟
experience

Current trends show that the customer’s perception of a brand will take precedence over
traditional advantages like cost of the product, its features and the usability it provides to the
customer. In today’s scenario, customers want good quality products, but they also want to
ensure that they are getting the best value for their money. Such value is perceived not only
through the product or service purchased by the customer, but also through the availability and
usability of the accompanying customer service. Virtually everything in today's digital age is a
Google search away. It makes it easier to find your goods and services, but the trade-off is that it
is easier to find your competitors too. That means it's simpler for dissatisfied or frustrated
customers to leave. Companies currently not investing in improving the customers‟ perception
of their brand are at the risk of falling behind the competition to a large extent. It's not enough to
have brand recognition anymore; customers want to feel good about a brand and a company.
They want to do business with businesses with a progressive mind and optimistic views of the
world.
 Different investment avenues are available to investors. Mutual funds also offer good
investment opportunities to the investors. Like all investments, they also carry certain risks. The
investors should compare the risks and expected returns after adjustment of tax on various
instruments while taking investment decisions. The investors may seek advice from experts
while making investment decisions. With an objective to make the investors aware of
functioning of mutual funds, an attempt has been made to provide information in question-
answer format which may help the investors in taking investment decisions.

What is a Mutual Fund?

Mutual fund is a mechanism for pooling money by issuing units to the investors and investing
funds in securities in accordance with objectives as disclosed in offer document.

Investments in securities are spread across a wide cross-section of industries and sectors and
thus the risk is diversifiedbecause all stocks may not move in the same direction in the same
proportion at the same time. Mutual funds issue units to the investors in accordance with
quantum of money invested by them. Investors of mutual funds are known as unitholders.

The profits or losses are shared by investors in proportion to their investments. Mutual funds
normally come out with a number of schemes which are launched from time to time with
different investment objectives. A mutual fund is required to be registered with Securities and
Exchange Board of India (SEBI) before it can collect funds from the public

What is the history of Mutual Funds in India and role of SEBI in mutual funds industry

Unit Trust of India was the first mutual fund set up in India in the year 1963. In late 1980s,
Government allowed public sector banks and institutions to set up mutual funds. In the year
1992, Securities and Exchange Board of India (SEBI) Act was passed. The objectives of SEBI
are – to protect the interest of investors in securities and to promote the development of and to
regulate the securities market.

As far as mutual funds are concerned, SEBI formulates policies, regulates and supervises
mutual funds to protect the interest of the investors. SEBI notified regulations for mutual funds
in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the
capital market. The regulations were fully revised in 1996 and have been amended thereafter
from time to time. SEBI has also issued guidelines through circulars to mutual funds from time
to time to protect the interests of investors.

All mutual funds whether promoted by public sector or private sector entities including those
promoted by foreign entities are governed by the same set of Regulations. There is no
distinction in regulatory requirements for these mutual funds and all are subject to monitoring
and inspections by SEBI.
A mutual fund is set up in the form of a trust, which has sponsor, trustees, Asset Management
Company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor
who is like promoter of a company. The trustees of the mutual fund hold its property for the
benefit of the unitholders. AMC approved by SEBI manages the funds by making investments
in various types of securities. Custodian, who is required to be registered with SEBI, holds the
securities of various schemes of the fund in its custody. The trustees are vested with the general
power of superintendence and direction over AMC. They monitor the performance and
compliance of SEBI Regulations by the mutual fund.

SEBI Regulations require that at least two-thirds of the directors of trustee company or board of
trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of
the directors of AMC must be independent.

All mutual funds are required to be registered with SEBI before they launch any scheme.

The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV).

Mutual funds invest the money collected from investors in securities markets. In simple words,
NAV is the market value of the securities held by the scheme. Since market value of securities
changes every day, NAV of a scheme also varies on day to day basis. The NAV per unit is the
market value of securities of a scheme divided by the total number of units of the scheme on any
particular date. For example, if the market value of securities of a mutual fund scheme is INR
200 lakh and the mutual fund has issued 10 lakh units of INR 10 each to the investors, then the
NAV per unit of the fund is INR 20 (i.e.200 lakh/10 lakh). NAV is required to be disclosed by
the mutual funds on a daily basis.
The NAV per unit of all mutual fund schemes have to be updated on AMFI‟s website and the
Mutual Funds‟ website by 9 p.m. of the same day. Fund of Funds are allowed time till 10 a.m.
the following business day to update the information.

1. Where the application is received up to 2.00 p.m. on a day and funds are available for
utilization before 2:00 p.m. without availing any credit facility, the closing NAV of the day
immediately preceding the day of receipt of application.

2. Where the application is received after 2.00 p.m. on a day and funds are available for
utilization on the same day without availing any credit facility, the closing NAV of the day
immediately preceding the next business day; and

3. Irrespective of the time of receipt of application (before or after 2:00 p.m. on a day), where
the funds are not available for utilization before 2:00 p.m. without availing any credit facility,
the closing NAV of the day immediately preceding the day on which the funds are available for
utilization.

1. Where the application is received up to 3.00 pm – the closing NAV of day immediately
preceding the next business day; and

2. Where the application is received after 3.00 pm – the closing NAV of the next business day.

What are the different types of mutual fund schemes?

Schemes according to Maturity Period: A mutual fund scheme can be classified into open-ended
scheme or close-ended scheme depending on its maturity period.

An open-ended fund or scheme is one that is available for subscription and repurchase on a
continuous basis. These schemes do not have a fixed maturity period. Investors can
conveniently buy and sell units at Net Asset Value (NAV) per unit which is declared on a daily
basis. The key feature of open-end schemes is liquidity.

A close-ended fund or scheme has a stipulated maturity period e.g. 3-5 years. The fund is open
for subscription only during a specified period at the time of launch of the scheme. Investors can
invest in the scheme at the time of the new fund offer and thereafter they can buy or sell the
units of the scheme on the stock exchanges where the units are listed. In order to provide an exit
route to the investors, some close-ended funds give an option of selling back the units to the
mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that
at least one of the two exit routes is provided to the investor i.e. either repurchase facility or
through listing on stock exchanges.

A scheme can also be classified as growth scheme, income scheme or balanced scheme
considering its investment objective. Such schemes may be open-ended or close-ended schemes
as described earlier. Such schemes may be classified mainly as follows
The aim of growth funds is to provide capital appreciation over the medium to long- term. Such
schemes normally invest a major part of their corpus in equities. Such funds have comparatively
high risks. These schemes provide different options to the investors like dividend option,
growth, etc. and the investors may choose an option depending on their preferences. The
investors must indicate the option in the application form. The mutual funds also allow the
investors to change the options at a later date. Growth schemes are good for investors having a
long-term outlook seeking appreciation over a period of time.

The aim of income funds is to provide regular and steady income to investors. Such schemes
generally invest in fixed income securities such as bonds, corporate debentures, Government
securities and money market instruments. Such funds are less risky compared to equity
schemes.

However, opportunities of capital appreciation are also limited in such funds. The NAVs of such
funds are affected because of change in interest rates in the country. If the interest rates fall,
NAVs of such funds are likely to increase in the short run and vice versa. However, long term
investors may not bother about these fluctuations.

The aim of balanced schemes is to provide both growth and regular income as such schemes
invest both in equities and fixed income securities in the proportion indicated in their offer
documents. These are appropriate for investors looking for moderate growth. They generally
invest 40-60% in equity and debt instruments. These funds are also affected because of
fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be
less volatile compared to pure equity funds.

These schemes are also income schemes and their aim is to provide easy liquidity, preservation
of capital and moderate income.

These schemes invest exclusively in short-term instruments such as treasury bills, certificates of
deposit, commercial paper and inter-bank call money, government securities, etc. Returns on
these schemes fluctuate much less compared with other funds. These funds are appropriate for
corporate and individual investors as a means to park their surplus funds for short periods.

These funds invest exclusively in government securities. Government securities have no default
risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic
factors as is the case with income or debt oriented schemes.

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index
(Sensex), NSE 50 index (Nifty), etc. These schemes invest in the securities in the same
weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with
the rise or fall in the index, though not exactly by the same percentage due to some factors
known as “tracking error” in technical terms. Necessary disclosures in this regard are made in
the offer document of the mutual fund scheme.

These are the funds/schemes which invest in the securities of only those sectors or industries as
specified in the offer documents, e.g., Pharmaceuticals, Software, Fast Moving Consumer
Goods (FMCG), Petroleum stocks, Information Technology (IT), Banks, etc. The returns in
these funds are dependent on the performance of the respective sectors/industries. While these
funds may give higher returns, they are more risky compared with diversified funds, investors
need to keep a watch on the performance of those sectors/industries and must exit at an
appropriate time. They may also seek advice of an expert.

These schemes offer tax rebates to the investors under specific provisions of the Income Tax
Act, 1961 as the Government offers tax incentives for investment in specified avenues, for
example, Equity Linked Savings Schemes (ELSS) under section 80C and Rajiv Gandhi Equity
Saving Scheme (RGESS) under section 80CCG of the Income Tax Act, 1961. Pension schemes
launched by mutual funds also offer tax benefits. These schemes are growth oriented and invest
pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-
oriented scheme

A scheme that invests primarily in other schemes of the same mutual fund or other mutual
funds is known as a FoF scheme. A FoF scheme enables the investors to achieve greater
diversification through one scheme. It spreads risks across a greater universe.

ETFs are mutual fund units that investors can buy or sell at the stock exchange. This is in
contrast to a normal mutual fund unit that an investor buys or sells from the AMC (directly or
through a distributor). In the ETF structure, the AMC does not deal directly with investors or
distributors. Units are issued to a few designated large participants called Authorised
Participants (APs). The APs provide buy and sell quotes for the ETFs on the stock exchange,
which enable investors to buy and sell the ETFs at any given point of time when the stock
markets are open for trading.

A capital protection-oriented scheme is typically a hybrid scheme that invests significantly in

fixed-income securities and a part of its corpus in equities. These are close-ended schemes that
come in tenors of fixed maturity e.g. three to five years.

If the fund collects INR 100, it invests INR 80 in fixed-income securities and INR 20 in
equities or equity related instruments. The money is invested in such a way that the INR 80
portion is expected to grow to become INR 100 in three years (assuming that the scheme has a
maturity period of three years). Thus, the aim is to preserve the INR 100 capital till maturity of
the scheme.

Thus, the scheme is oriented towards protection of capital and not with guaranteed returns.
Further, the orientation towards protection of capital originates from the portfolio structure of
the scheme and not from any bank guarantee or insurance cover. Investors are neither offered
any guaranteed/indicated returns nor any guarantee on repayment of capital by the scheme.

A Load Fund is one that charges a percentage of NAV for entry or exit andthe load structure
in a scheme has to be disclosed in its offer documents. Suppose the NAV per unit is INR 10. If
the entry as well as exit load charged is 1%, then the investors who buy would be required to
pay INR 10.10 (10 + 1% of 10) per unit and those who offer their units for repurchase to the
mutual fund will get only INR 9.90 (10 – 1% of 10) per unit. Currently, in India, the exit load
charged is credited to the scheme. The investors should take the loads into consideration while
making investment as these affect their returns. However, the investors should also consider the
performance track record and service standards of the mutual fund which are more important.
 A no-load fund is one that does not charge for entry or exit. It means the investors can enter
the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.

SEBI has mandated that no entry load can be charged for any mutual fund scheme in India.

Mutual funds cannot increase the exit load beyond the level mentioned in the offer document.
Any change in the load will be applicable only to prospective investments and not to the original
investments. In case of imposition of fresh loads or increase in existing loads, the mutual funds
are required to amend their offer documents so that the new investors are aware of loads at the
time of investments. As no entry load can be charged for mutual fund schemes in India, no
change can be made with respect to entry load.

One of the cardinal rules of investing is not to put all of one’s investment “eggs” in one
basket. Investors can lower the risk that they run to achieve a given rate of return—or achieve
higher returns for a given level of risk—by diversifying across and within broad categories,
most commonly equities and bonds. The mutual fund industry, dating from the formation of
investment trusts more than two centuries ago, owes its origin to this simple insight: by pooling
funds from a large number of investors and placing the funds into portfolios of financial
instruments, mutual funds provide a more efficient means of diversification than individuals can
achieve by investing on their own in specific stocks and bonds

Mutual funds are of two basic types, closed- and open-end funds. Closed-end funds hold a
fixed number of securities, with a fixed number of outstanding shares, which are traded in the
open market as individual equities. The price of the shares thus is set in the market and often
falls short of the fund’s liquidation value per share. Open-end funds, in contrast, are
continuously accepting (and in some cases redeeming) shares and investing the proceeds in a
changing portfolio of securities. The shares are bought and sold at the fund’s “net asset value,”
or the per share market value of all of the securities held by the fund, typically calculated from
prices on the preceding trading day. Open-end funds have proven to be far more popular than
closed-end funds, and unless otherwise noted, the discussion of mutual funds or the mutual fund
industry in this book refers specifically to open-end funds.

The mutual fund industry has enjoyed especially rapid growth since the end of World War II,
a product of growth in income and wealth in developed economies (which fueled rising fund
inflows) and the rise in stock prices (which increased the value of the monies invested). In the
United States, for example, mutual funds held roughly $10 trillion in assets at year-end 2006, up
from just $50 billion in the late 1960s. Worldwide, mutual fund assets exceeded $21 trillion at
year-end 2006, a total that also had multiplied many times over the same period.

Mutual funds have grown not only in asset size but also in number. Currently more than
8,000 individual mutual funds are offered in the United States by roughly 500 mutual fund
sponsors. Many more thousands of funds or their equivalents are in operation elsewhere
throughout the world.
 The large number of funds reflects the presence of many different types of funds, some that
invest in both stocks and bonds of various types and many others that specialize in certain types
of securities: large- and small-cap stocks, funds for virtually every industry sector, funds that
mimic certain well-known stock indexes (the S&P 500 and the Dow-Jones averages or broader
indexes, such as the Russell 3000), country funds, funds for different regions of the world, and
funds that invest in various types of bonds of varying maturities.

Yet even as mutual fund assets have grown and choices among them have multiplied, it is not
clear—as it once may have been—where this particular asset vehicle and the industry that has
generated it are headed. New methods and options for efficient diversification have arisen—
exchange-traded funds, or ETFs (instruments that trade like stocks and whose value is tied to
some index); separately managed accounts offered by brokerage competitors; and limited
partnerships in hedge funds and private equity funds (for wealthy investors)—and they are
rapidly gaining ground on mutual funds. Meanwhile, the regulation of mutual funds themselves
has been in flux, at least in some quarters. The scandals earlier in this decade in the United
States over the “late trading” of fund shares by certain clients, coupled with criticism of fund
fees, have sparked interest in strengthening oversight of funds. Meanwhile, the growing use of
the Internet by investors to access information and to buy and sell individual securities as well
as mutual funds and competing diversification vehicles is likely to lead eventually to major
changes in the way that funds are required to disclose their investment objectives and
performance and in the way that shareholders vote their shares.

Given the importance of mutual funds and the policy issues related to them, the Brookings
Institution and the Tokyo Club convened their fourth annual joint conference on financial
markets on October 18, 2007, at the Brookings Institu2 yasuyuki fuchita and robert e. litan tion
to examine the future of mutual funds as investment instruments and the future of the industry
itself. This book presents the papers written for the conference and formal comments on the
papers. We summarize here some of the key arguments and conclusions found in the
presentations.

Mutual Funds in the United States

Because the fund industry and investor base are most developed in the United States, it is
appropriate to begin with an analysis of the U.S. market. Paula Tkac of the Federal Reserve
Bank of Atlanta takes up the challenge in chapter 1, first by describing the developments that
have been most pronounced in the industry in the recent past and then by projecting the key
trends that she expects to dominate fund activity in the foreseeable future.

Looking back, Tkac identifies the proliferation of different types of funds and the recent
emergence of the funds’ main competitor, the ETF, as among the more important developments
in the fund industry. She adds to that list the provision by fund sponsors of other services apart
from the funds themselves: information, investment advice, planning, recordkeeping, and access
to and trading of other investment products. Indeed, she notes that in 2005 more of the people
working in the fund industry serviced investors’ accounts than managed fund portfolios.
 The structure of the fund industry as well as the way that funds are distributed have changed
in significant respects. Thirty years ago, funds generally were sold through brokers, who were
paid out of a front-end load, or sales charge. With the adoption of rule 12b-1 in 1980 by the
Securities and Exchange Commission, mutual funds were allowed to spread their marketing and
distribution charges out over time and to take the costs out of fund assets. Tkac notes that many
fund companies implemented the rule by introducing new share classes within the same fund,
with each share class having its own fee structure. That, in turn, enabled fund advisers to
distribute shares in various ways: through captive brokers, wholesalers, and financial advisers;
through institutional pension or 401(k) programs; and to investors directly.

Perhaps the most important change in fund distribution in the past fifteen years in particular
was the development of “open architecture” or “open platform” methods of distribution. Under
this approach, fund sponsors give investors access to a range of funds, including those offered
and managed by other advisers. Much of industry thus has moved away from a specialist,
proprietary structure and toward “financial supermarkets” that offer investors a broad choice of
funds as well as a range of investment-related services.

Looking ahead, Tkac predicts that the most important factor affecting fund investment
activity and patterns will be the retirement of the baby boom generation. Up to this point, of
course, baby boomers have fueled the increase in assets invested in funds, encouraged by the
shift among employers from defined benefit to defined contribution retirement plans, in which
most of the funds are invested in mutual funds. Now that the baby boomers are beginning to
retire, they will withdraw from rather than add to their fund accounts. In such an environment, a
key challenge for fund companies will be to offset as best they can those withdrawals with new
deposits from younger investors. At the same time, fund companies should find new service
opportunities in advising retirees on how to draw down (“decumulate”) their fund balances, as
some companies already are doing through the “retirement calculators” featured on their
websites.
 In her chapter, Tkac surveys various theories about how retirees can best make the difficult
decisions involved in “asset decumulation.” Key factors in the decision include their tolerance
for risk—specifically, the risk that they might outlive their assets—and the extent to which they
want to leave bequests to their heirs. One obvious way for individuals to reduce or even
eliminate longevity risk is by purchasing annuities. While the current annuity market is small,
Tkac suggests that insurers that offer annuities will become more innovative in their attempts to
spur demand for this particular investment product in the future.

Tkac expects fund sponsors to build on their past record of innovation in their efforts to
attract investments from younger workers. In particular, Tkac predicts that mutual fund
companies will broaden the range of their offerings of other financial services and increase their
use of Internet technologies to refine and individualize the investment products and services that
they offer to investors.

The Mutual Fund Industry in Japan

In the United States, mutual funds are organized legally as “investment companies,” which
technically are corporations, whose shares represent the prorated market value of the assets held
by the funds. Mutual fund owners thus are “shareholders,” who elect the members of the fund’s
board of directors, which oversees the operation of the funds. The investment strategy of the
funds, however, is set by an investment adviser, who typically has organized and marketed the
funds.

In Japan, as in some other countries, the more popular mutual funds are those that have been
organized instead as investment trusts, which are administered by a fund trustee without a board
of directors overseeing the fund. Investors in investment funds have a contractual rather than a
shareholder relationship with their funds.

In chapter 2, Koichi Iwai of the Nomura Institute of Capital Markets Research examines the
growth of investment trusts in Japan and offers his views about the future. Japanese investors
have been slower to embrace their equivalent of mutual funds than investors in the United
States, although that has been changing. Inflows into investment trusts were substantial in the
late 1980s, just before Japan’s stock market “bubble” burst, and in the past few years they again
have become significant. During the 1990s—Japan’s “lost decade”—Japanese investors pulled
their money out of investment trusts

Given the popularity of foreign currency–denominated mutual funds, Iwai postulates that
inflows into Japanese trusts should react positively to yen weakening (which makes Japanese
securities more attractive). In addition, fund inflows should increase as equity returns widen
relative to interest rates on savings deposits. Iwai presents a statistical study that confirms both
hypotheses. Of particular interest, he reports that exchange rate movements have had a greater
impact on net fund inflows since 2003 than beforehand.
 Iwai points to two regulatory changes affecting the distribution of investment trusts in Japan
that he believes also have stimulated inflows into the trusts. One change allowed banks (in
1998) and later the post office (in 2005) to sell shares in investment trusts. The second change,
adopted in 2001, introduced defined contribution pension plans. Five years later, in 2006,
investment trusts accounted for nearly 40 percent of the assets in those plans.

Product innovation also has led to growing interest in investment trusts among Japanese
investors. Iwai notes that interest in investment trusts rises with age and that Japanese investors
tend to be risk averse and more interested in obtaining regular income than capital gains from
their trusts. Hence, trust investors have been most interested in balanced funds (which pay
dividends), funds of funds, and foreign currency–denominated funds.

Iwai advances a short-run projection for the growth of investment trust assets in Japan. Using
existing trust investment tendencies by age cohort and taking account of the positive
relationship between investor age and the amount of funds invested in trusts, Iwai projects that
because of the continued aging of the Japanese population, total investment trust assets should
be 45 percent higher in 2010 than in 2000.

Looking out over a longer time horizon, Iwai identifies a number of factors that, unless they
change, should limit the growth of the investment trust industry. One such factor relates to the
“default choice” for individuals enrolled in contribution plans. For most workers, the current
default is a savings account. Unless that changes, the opportunities for further growth in pension
monies allocated to investment trusts will be capped. A second factor limiting the growth of
assets is he greater concentration—and thus less intense competition—that exists in the
Japanese fund industry than in the U.S. industry. A third limiting factor is that Japanese
financial organizations tend to favor trusts advised by their own asset managers, a tendency
confirmed by Iwai’s empirical analysis. That tendency, which effectively limits customer choice
and thus possibly interest in trust investments generally, contrasts with the movement toward
the open architecture distribution model for mutual funds in the United States

Finally, the growth of the investment trust industry is limited by the current preference of
Japanese investors for income-oriented investment vehicles. Investor education about the
benefits of investing in growth-oriented vehicles would expand the horizons of Japanese
investors and thus widen opportunities for the growth of investment trusts in the future.

Mutual Funds in Europe and Elsewhere

As suggested by the total amount of assets noted previously, the mutual fund industry has
become a global phenomenon. As of year-end 2006, assets held in mutual funds outside the
United States exceeded the assets of U.S. funds. What lies ahead for mutual funds around the
world? Ajay Khorana of the Georgia Institute of Technology and Henri Servaes of the London
Business School address a number of aspects of this question in chapter 3.
 Khorana and Servaes begin with a brief survey of the fund industry around the world.
Notably, although fund assets are largest in the United States, relative to national output (GDP),
the ratio of fund assets to GDP is next highest in Luxembourg, followed closely by Ireland.
Both countries have become hubs for fund sales throughout Europe.

Looking ahead, the authors suggest that an important precondition for rapid growth in fund
assets in a country is that fund assets relative to GDP be relatively low, so that ample room
exists for future growth. Once that condition is met, growth should depend heavily on the
quality of a country’s legal system. For that reason, although the ratio of fund assets to GDP is
small in countries such as China, India, Russia, and Turkey, fund growth in those countries is
likely to be limited unless the quality of their legal systems improves significantly. Other factors
that also should influence the rate of growth of fund assets are the ease and cost of forming new
funds and the prevalence of defined contribution plans, which are major sources of fund asset
growth.

Mutual funds are sold through three channels: directly by fund management companies,
through financial advisers, and by commercial banks. Khorana and Servaes expect no major
changes in current distribution patterns. However, they do report evidence indicating that
financial advisers do not benefit investors but instead tend to raise fees and reduce risk-adjusted
returns.

Not all countries have a “free market” in the sale of mutual funds—that is, they do not permit
funds established in foreign countries to be sold in the domestic market. That is the case in
Australia, Canada, Japan, and the United States, but there are significant cross-border mutual
fund sales in Europe. The authors do not expect major changes in existing patterns, although
they do anticipate some decline in European sales from Luxembourg and Ireland as European
governments make it more difficult to hide ownership and income from funds in the two
countries. Further, with the expiration of the tax advantages that helped spur the growth of the
fund industry in Ireland, the authors expect Luxembourg to widen its lead over Ireland in future
growth of fund assets on the Continent.

Khorana and Servaes also address certain of the controversial issues related to mutual fund
fees, which are of two broad types: fees assessed when investors buy or sell fund shares and fees
assessed annually (for portfolio management and, in some places, to pay for fund distribution
and marketing). Fees vary significantly across and within countries, even when adjusted for size
of funds, but as a percentage of assets, they typically go down as funds get larger and are able to
realize economies of scale. By the authors’ calculations, fund fees are lowest in Australia and
highest in Canada. Fees in the United States are relatively modest compared with those in other
countries. Fee-related lawsuits filed in the United States against fund companies so far have not
succeeded, although the authors suggest that there may be downward pressure on fees if
plaintiffs begin to prevail in such suits.

The authors note that one type of fee—the “performance-based” fee—is much more common
in Europe than in the United States. Such fees are imposed if and when performance exceeds
some benchmark. Performance fees are not common in the United States, because by law any
such fees must be symmetric—if they rise for good performance, they must fall for poor
performance. In Europe, however, fund managers can charge performance fees that are
asymmetric—fees can go up if funds outpace the benchmark but do not have to go down if they
fall below it. The authors note that performance fees are charged by 12 percent of European
equity funds and suggest that use of such fees in Europe (but not the United States) will be more
frequent in the future.

As we noted at the outset, the diversity of mutual funds has been growing over time. Khorana
and Servaes single out several fund categories that have become increasingly popular in recent
years and that they expect to become even more so in the future: index funds; guaranteed funds
(funds established for a fixed period that increase in value if a specific index rises and guarantee
the return of principal should the index not increase in value over that period); funds that
specialize in certain industry sectors; and hedged mutual funds (funds that follow investment
strategies similar to those of hedge funds). The authors are more cautious about the future of
“funds of funds”—mutual funds that invest in other mutual funds—because of the multiple
layers of fees embedded in such funds.

Khorana and Servaes also present an extensive discussion of the behavior of mutual fund
investors. Specifically, they ask whether investors tend to act rationally, seeking to maximize
the risk-adjusted, after-tax returns of their funds, net of fees. The authors identify several
patterns of investor behavior suggesting that the answer to that question is no.

One such pattern shows that fund investors tend to chase fund “winners”— funds that have
performed the best over some recent time period or those that have been rated the best by
independent rating services such as Morningstar. The best study of this “hot hand”
phenomenon, however, suggests that investors’ faith in recent winners is misplaced: past returns
are not a statistically valid predictor of future returns, except in the case of poorly performing
funds, which consistently tend to perform poorly. The exception for poor performers highlights
a second oddity: that despite the funds’ persistent poor performance, investors in such funds do
not consistently withdraw their money beyond the first “bad year.”

A third pattern inconsistent with the rational actor model is the persistence of large
differences in fees among funds of the same type, such as index funds. In a rational world, such
differences would not persist—investors would flock to the fund or funds with the lowest
expense ratios—but Khorana and Servaes indicate that so far, they have not. Further, although
all fees come out of investors’ pockets and ideally should affect fund flows in the same fashion,
in fact investors tend to pay more attention to fees that are more transparent, such as front-end
load or sales charges, than to annual expenses.
BIBLIOGRAPHY:
Newspaper:
Economics Times of India.

WEBILOGRAPHY:
https://www.bankbazaar.com/

https://www.youthkiawaaz.com/

https://www.slideshare.net/

https://www.quora.com/

https://www.xiss.ac.in/

http://euroasiapub.org/

http://www.iipa.org.in/

https://byjus.com/

http://ifmrlead.org/

http://data.conferenceworld.in/

https://www.researchgate.net/

https://www.ijedr.org/

ANNEXURE:
 QUESTIONNAIRE FOR BANK.
Name: Designation:
Age:
Bank:

1. Do you agree that demonetization helped to remove black

money and corruption from India?
Agree Disagree

2. Do you think that demonetization had a positive impact over

banking sector?
Yes No

3. Do you agree that there is an impact of demonetization on online

banking?
Agree Neutral Disagree

4. Do you think that demonetization helped the bank employees?

Yes No

5. What was the impact of demonetization on interest rate?

Increase Decrease No impact

6. What was the impact of demonetization on the cash flow in the

bank? Increase Decrease No impact

7. What was the impact of demonetization on money lending?

Increase Decrease No impact
8. What was the impact of demonetization on the use of plastic
cards? Increase Decrease No impact

9. Do you agree that government was not prepared enough for the
post demonetization situation?
Agree Neutral Disagree

10. Do you think that demonetization has increased the

workload of the bank employees?
Yes No

Signature:

QUESTIONNAIRE FOR CUSTOMERS.

Name: Gender:
Age:
Profession:
1. Do you have a bank account?
 Yes No
2. In which bank you have an account?
Axis HDFC ICICI Other

3. What problems you had faced during demonetization?

Shortage of cash Difficulties in depositing the cash in banks
Liquidity problems All

4. Do you agree that demonetization has encouraged to make

digital payments?
Agree Disagree

5. Do you agree that demonetization has helped to remove black

money from India?
Agree Disagree

6. Do you think that it is a good idea to go cashless?

Yes No

7. Do you think that demonetization helps in growth and

development of Indian economy?
Yes No

8. Through which modes of payment you make payments of your

goods and services?

Paytm Google pay Bharat pay Other

9. According to you , what is your idea for cashless India?

Internet connection in rural areas Digital literacy
 Free wifi at all public places All

10. According to you, is demonetization a success or failure?

Success Failure
Signature: