UNIVERSITY OF MUMBAI

ALKESH DINESH MODY INSTITUTE FOR FINANCIAL AND

MANAGEMENT STUDIES

A Project Report On

THE PRESPECTIVE OF INVESTORS TOWARDS MUTUAL FUND AS AN

INVESTMENT OPTION

Submitted By
SAYALI DILIP KHOPATKAR
ROLL NO 32

MASTER OF MANAGEMENT STUDIES (MMS) IN

Specialization: Finance Batch: 2022-2024

Under the Guidance of

Ms. MEGHA BANSAL

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 University of Mumbai’s
Alkesh Dinesh Mody Institute For Financial
and Management Studies

Certificate

I, Ms Megha Bansal hereby certify that Ms. Sayali Dilip Khopatkar,

SYMMS Student of Alkesh Dinesh Mody Institute for Financial and
Management Studies, has completed a project titled “The Perspective of
Investors towards Mutual Fund as an Investment Option”in the area of
specialization Finance for the academic year 2022-2024. The work of the
student is original and the information included in the project is true to the best
of my knowledge.

MMS Coordinator Director

Internal Guide External Examiner

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 Declaration

I, Ms. Sayali Dilip Khopatkar SYMMS Student of Alkesh Dinesh Mody

Institute for Financial and Management Studies, hereby declare that I have
completed the project titled “The Perspective of Investors towards Mutual
Fund as an Investment Option” during the academic year 2022- 2024.
The report work is original and the information/data included in the report is
true to the best of my knowledge. Due credit is extended on the work of
Literature/Secondary Survey by endorsing it in the Bibliography as per
prescribed format.

Signature of the Student

Date

Sayali Dilip Khopatkar

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 ACKNOWLEDGEMENT

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

It is my radiant sentiment to place my deepest sense of gratitude to Dr. Smita Shukla,

Director of Alkesh Dinesh Mody Institute for giving me this opportunity to work on the
project.

I would like thank my mentor for the project Ms. Megha Bansal who in spite of being busy
with his duties, for taking part in interactive meeting and discussion, giving necessary
advices and guidance and keeping me on the correct path. I choose this moment to
acknowledge his contribution gratefully.

Signature of the Student

Sayali Dilip Khopatkar

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 PROJECT GUIDE INTERACTIONCERTIFICATE FORM

I, the undersigned Ms. Sayali Dilip Khopatkar Roll No. 32 studying in the Second

Year of Masters in Management Studies, Two Years Full-time Degree Course is

doing my project work under the guidance of Ms. Megha Bansal, wish to state that I

have met my Internal guide on the following dates mentioned below for Project

Guidance:-

Sr.No. Date Signature of the Internal

Guide

Signature of the Candidate Signature of Internal Guide

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 TABLE OF CONTENTS

Sr No Topic Page No

1 Introduction 9

2 Literature Review 11
3 Objective of the study 13
4 Research Methodology 14
5 Investment and Types of Investment Option 15
5.1 Objective of Investment 15
5.2 Types of Investment Option 18
6 Mutual fund 23
6.1 History of Mutual Fund in India 24
6.2 Advantages of Mutual Fund 29
6.3 Risk Factors In Mutual Fund 31
6.4 Tax Regime Specific to Mutual Fund Investors in India 35
6.5 What is NAV 37
6.6 Structure of Mutual Fund 38
6.7 Expense Ratio 42
7 Types of Mutual Fund 45
8 Data analysis and findings 54
9 Conclusion 61
10 References 62

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 EXECUTIVE SUMMARY

India is undoubtedly emerging as the next big investment destination, riding on a high savings
and investment rate, as compared to other world economies. In today’s volatile market
environment, mutual funds are looked upon as a transparent and low cost investment vehicle,
which attracts a fair share of investor attention leading to growth of the industry. The landscape
of the financial sector in India is continuously evolving, accredited to regulatory changes being
undertaken, which is leading market participants like the asset management companies
(AMCs) and distributors to restructure their strategies and adopt business models which will
yield sustainable benefits. The advent of Mutual Funds changed the way the world invested
their money. The start of Mutual Funds gave an opportunity to the common man to hope of
high returns from their investments when compared to other traditional sources of investment.
The mutual fund industry is spread all over the world with US alone accounting for over 50%
of it. The schemes offered all over the world are similar in their basic structure though they
differ in numbers and with some countries having specialized schemes.

A Mutual Fund is an investment vehicle that pools funds from various investors and invests the
funds in stocks, bonds, short-term money-market instruments, other securities or assets or some
combination of these investments. The primary goal behind investment in mutual fund isto earn
goods return with comparatively low risk. The main objective of this research is to identify
investors’ perspective towards mutual fund by using in structured questionnaire, The findings
from this research are that the most of the investors are already investing in mutual and others
definitely wish to invest in the future.

The Indian capital market has been growing tremendously with the reforms of the industrial
policy, reforms 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 market and money market with the
help of financial system and financial institutions or intermediaries which foster savings and
channels them to their most efficient use. One such financial intermediary who has played a
significant role in the development and growth of capital markets is Mutual Fund (MF).

Mutual funds have opened new vistas to millions of small investors by virtually taking
investment to their doorstep. In India, a small investor generally goes for bank deposits, which

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do not provide hedge against inflation and often have negative real returns. He has limited
access to price sensitive information and if available, may not be able to comprehend publicly
available information couched in technical and legal jargons. He finds himself to be an odd
man out in the investment game. Mutual funds have come, as a much needed help to these
investors. MFs are looked upon by individual investors as financial intermediaries/ portfolio
managers who process information, identify investment opportunities, formulate investment
strategies, invest funds and monitor progress at a very low cost. Thus the success of MFs is
essentially the result of the combined efforts of competent fund managers and alert investors.
A competent fund manager should analyze investor behaviour and understand their needs and
expectations, to gear up the performance to meet investor requirements.

The role of Indian mutual fund industry as significant financial service in financial market has
really been noteworthy. In fact, the mutual fund industry has emerged as an important segment
of financial market of India, especially in channelizing the savings of millions of individuals
into the investment in equity and debt instruments. Mutual funds are seemingly the easiest and
the least stressful way to invest in the stock market. Quiet a large amount of money has been
invested in mutual funds during the past few years. Any investor would like to invest in a
reputed Mutual Fund organization. Mutual funds are financial intermediaries concerned with
mobilizing savings of those who have surplus and the canalization of these savings in those
avenues where there is a demand for funds. These intermediaries employ their resources in
such a manner as to provide combined benefits of low risk, steady return, high liquidity and
capital appreciation through diversification and expert management. Reforms in the Indian
economic system and the opening up of the economy have been the reasons for the tremendous
growth in the Indian capital market.

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 1. INTRODUCTION
A Mutual Fund pools the money of people with certain investment goals. The money invested
in various securities depending on the objectives of the mutual fund scheme and the profits (or
loss) are shared among investors’ in proportion to their investment. Investments in securities
are spread across a wide cross-section of industries and sectors. Diversification reduces the risk
because all stocks may not move in the same direction in the same proportion at the same time.
Mutual fund issues units to the investors’ in accordance with quantum of money invested by
them. Investors’ of mutual funds are known as unit holders. The profits or losses are shared by
the investors’ in proportion to their investment. The mutual funds normally come out with a
number 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 (SEBI)
which regulates securities markets before it can collect funds from the public. A Mutual fund
is a trust that pools the savings of a number of investors’ who share a common financial goal.
The money collected from investors’ is invested in capital market instrument such as shares,
debentures and other securities. The income earned through these investments and the capital
appreciations realized are shared by its unit’s holder in proportion to the number of units owned
by them. Thus a Mutual Fund is the most suitable investment to the common man as it offers
an opportunity, to invest in a diversified, professionally managed basket of securities at
relatively low cost. Mutual funds can be invested in many different kinds of securities. The
most common are cash, stock, and bonds, but there are hundreds of sub-categories.

Stock funds invest primarily in the shares of a particular industry, such as technology or
utilities. These are known as sector funds. Bond funds can vary according to risk (e.g.,
highyield or junk bonds, investment-grade corporate bonds), type of issuers (e.g., government
agencies, corporations, or municipalities), or maturity of the bonds (short- or long-term). Both
stock and bond funds can invest in primarily U.S. securities (domestic funds), both U.S. and
foreign securities (global funds), or primarily foreign securities (international funds). Most
mutual funds' investment portfolios are continually adjusted under the supervision of a
professional manager, who forecasts the future performance of investments appropriate for the
fund and chooses those which he or she believes will most closely match the fund's stated
investment objective. A mutual fund is administered through a parent management company,
which may hire or fire fund managers. Mutual funds are liable to a special set of regulatory,

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accounting, and tax rules. Unlike most other types of business entities, they are not taxed on
their income as long as they distribute substantially all of it to their shareholders. Also, the type
of income they earn is often unchanged as it passes through to the shareholders.

A mutual is a set up in the form of trust, which has sponsor, trustee, assets management
company (AMC) and custodian. Sponsor is the person who acts alone or in combination with
another body corporate and establishes a mutual fund. Sponsor must contribute at least 40% of
the net worth of the investment managed and meet the eligibility criteria prescribed under the
Securities and Exchange Board of India (Mutual Funds) regulations, 1996. The sponsor is not
responsible or liable for any loss or shortfall resulting from the operation of the schemes beyond
the initial contribution made by it towards setting up of Mutual Fund. The Mutual Fund is
constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the
Sponsor.

Trustee is usually a company (corporate body) or a board of trustees (body of individuals). The
main responsibility of the trustee is to safeguard the interest of the unit holders and also ensure
that AMC functions in the interest of investors’ and in accordance with the Securities and
Exchange Board of India (Mutual Fund) Regulations 1996 the provisions of the Trust deed and
the offer Document of the respective schemes. The AMC is appointed by the Trustees as the
investment Manager of the Mutual Fund. The AMC is required to be approved by SEBI to act
as an asset management company of the Mutual Fund. The AMC if so authorized by the Trust
Deed appoints the Registrar and Transfer Agent to agent the mutual fund. The registrar
processes the application form, redemption requests and dispatches account statements to the
unit holders. The Registrar and Transfer agent also handles communications with investors’
and updates investor records.

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 2. LITERATURE REVIEW
Rathnamani (2013) explained that many investors are preferred to invest in mutual fund in
order to have high return at low level of risk, safety liquidity. The world of investment has been
changing day to day, so investor’s preferences toward investment pattern also changed. In the
demographic profile, most of the investors are willing to invest only 10 percent in their annual
personal income; around 39 percent of investors belong to age range of 31 to 40 years. In this
study investors are willing to take moderate and low level risk; most of the investors belong to
moderate investment style.

Rajasekar (2013) carried out to know about the investor’s perception with regard to their
profile, income, savings pattern, investment patterns and their personality traits. In order to
understand the level of investor’s preference, a survey was conducted taking into consideration
various parameters involved in investors decision making. A questionnaire survey method
wasselected as the investor population is vast a sample size of 150 was taken for the project.
The data was analyzed using the statistical tools like percentage analysis, chi square, weighted
average. From the findings, it was inferred overall that the investor is highlyconcerned 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.

Mane (2016) examined the customer perception with regard to mutual funds that are the
schemes they prefer, the plans they are opting, the reasons behind such selections and also this
research dealt with different investment options, which people prefer along with and a part
from mutual funds like postal saving schemes, recurring deposits, bonds and shares. The
findings from this project are that of the people are hesitant in going for new age investments
like mutual funds and prefer to avert risks by investing in less risky investment options like
recurring deposits.

Singh and Jha (2009) conducted a study on awareness & acceptability of mutual funds and
found that consumers basically prefer mutual fund due to return potential, liquidity and safety
and they were not totally aware about the systematic investment plan. The invertors’ will also
consider various factors before investing in mutual fund.

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Agarwal (2007) examine there has been a tremendous growth in the mutual fund industry in
India, attracting large investments not only from the domestic investments but also from the
foreign investors. Increasing number of Asset based Management Companies providing
opportunity to the investors in the form of safety, hedging and arbitrage. With the growing
middle-class household families with limited risk bearing capacity, it provides better returns
than any other long-term securities. India’s high rate of savings and a rapid-liberalizing
economy is expected to elevate the mutual fund sector to new hikes.

Kumar,et.al (2014) He has made an attempt to understand the financial behavior of Mutual
Fund investors in connection with the preferences of Brand (AMC),Products, Channels etc. I
observed that many of people have fear of Mutual Fund. They have a notion that money is not
secure in the mutual fund front. They need to be educated more on Mutual fund only then
knowledge of Mutual Fund and its related terms can be attained.

Sharma, N.(2012) attempts to study the extent to which investors are satisfied (in terms of
different benefits offered by mutual fund companies to attract investment in mutual fund) and
also to identify factors essential for securing investor’s penetration. The study found that all
the benefits which emerge out from the investment in mutual fund may be grouped into three
categories. The first category relates to the scheme/ fund related attributes. This includes safety
of money invested in mutual funds, favorable credit rating of fund/ scheme by reputed credit
agencies, full disclosure of all relevant information and regular updates on every trading day.
The second category is related with the monetary benefits provided by fund/schemes in form
of capital appreciation, liquidity, ROI (return on investment), early bird incentives, fringe
benefits and relaxation in charges (expense ratio, entry load and exit load). The last category
relates with the sponsor related attributes.

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 3. OBJECTIVES OF THE STUDY

 To study the factors underlying consumer perception towards investment in mutual fund.
 To explore the various factors influencing customer investment decision in mutual fund.
 To study and analyse the impact of various demographic factors on customers mutual
fund investment decision.

 To evaluate preferences of the customers while taking mutual fund investment decision.

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 4. RESEARCH METHODOLOGY

 The Study
The study was exploratory in nature with survey method being used to complete the study.

 Research Design
Descriptive research design that attempts to describe and explains conditions of the present by
using many subjects and questionnaires to fully describe a phenomenon.

Data collection included both primary and secondary data .

 Primary Data collection

Primary data collection is done using a structured questionnaire.

 Secondary Data Collection

The secondary data is collected from the organization website, AMFI reports, journals,

Textbooks etc., Most of the data is collected from books and some ofthe data is gathered from

the websites.

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 5. INVESTMENTS AND TYPES OF INVESTMENT OPTIONS
An investment can be defined as an asset that is created with the intention of helping your
wealth to grow with time and secure your future financial requirements. The wealth created
through investment plans can be used for a variety of objectives such as meeting shortages in
income, saving up for retirement, or fulfilling certain specific obligations such as repayment of
loans, funding children’s higher education, purchase of other assets, etc.

It is essential to comprehend what an investment is because, on occasion, it might be

challenging to select the appropriate instruments to achieve your financial objectives. You can
make the best decisions if you understand the significance of investments in the context of
your specific financial circumstances. Understanding the investment definition is crucial as
sometimes, it can be difficult to choose the right instruments to fulfil your financial goals.
Knowing the investment meaning in your particular financial situation will allow you to make
the right choices.

Investment may generate income for you in two ways. One, if you invest in a saleable asset,
you may earn income by way of profit. Second, if Investment is made in a return generating
plan, then you will earn an income via accumulation of gains. In this sense, ‘what isinvestment’
can be understood by saying that investments are all about putting your savings into assets or
objects that become worth more than their initial worth or those that will help produce an
income with time.

Financially speaking, an investment definition is an asset that is obtained with the intention of
allowing it to appreciate in value over time. Generally, investments fall in any one of three
basic categories, as explained below.

5.1 OBJECTIVES OF INVESTMENT

An investor needs to have an identifiable goal in mind. These are goals for investing that can
help you decide what kind of investments to make and how to get ready for the future.
Investments are divided into three categories: safety, growth, and income, as well as secondary
goals. To choose the perfect mix and make investments that best meet your needs, it is crucial
to understand the investment and its aims before you start investing. Let's examine the different
goals of investment.

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1. Safety:

Everyone wishes to keep their money safe and secure. If you are a conservative investor
who desires to get their initial capital investment at maturity on time and without losses,
then indeed, the safety objective is essential to you. Although, you must know that no
investment is entirely safe or risk-free. But, if your primary objective is safety, you can
make investments that come with low or reduced risks. Naturally, the returns will also be
low on these investments and may not keep up with rising inflation. Some examples of
safe investment objectives are government bonds, bank securities, or money market
instruments.

2. Capital Gain:
A vital investment objective, capital gain or capital appreciation, is when you wish to grow
your wealth. While safety is crucial, many people majorly invest moneyfor it to grow. One
can achieve capital gains through conservative growth, aggressive growth, and speculation.
o Conservative growth is when investors build an investment portfolio that will
generate wealth over time.
o Aggressive growth is when investors make a bold investment in stocks to make
short and long-term gains.
o Speculation is when investors try to maximise returns by trading shares and
securities through the speculation of share prices.
Capital gains involve plenty of forecasting and identifying which stock to buy when. Plus,
they attract taxes. As a result, such investments should be carried out only with thorough
research in a disciplined manner.

3. Income:
As the name suggests, the income investment objective means investing to generate a
source of income for yourself. This income comes in the form of dividends, interest, or
yields. These investment objectives come with a high level of risks and low stability, but
the returns are also higher. Conservative investors tend to include income objectives in
their portfolios due to their attractive returns and ability to keep up with inflation. An
example of an income investment object is the stock market - it comes with high risks and
high returns.

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4. Liquidity:
Another investment objective is the liquidity of the type of investment you make.
Liquidity is the ability to instantly trade/sell-off/convert assets into cash with ease in the
market and with minimal risk of loss. While some securities are easier to liquidate, others may
not be so. Most investors generally prefer investing in securities that are easierto liquidate and
use during emergencies. If not entirely, they try to keep a part of their total investments in the
form of readily marketable securities. Thus, if liquidity is one of your key objectives, you can
consider investing in such securities too.

5. Tax Savings:
Did you know that the income earned from capital gains is taxed differently?Yes, taxes on
such income are lower as compared to taxes levied on interest or salary-basedincome! This
makes tax savings a common investment objective among many. Tax-free savings accounts
and National Pension Scheme are some investment examples that promote tax savings.
Moreover, life insurance policies and tax-saving mutual funds are also popularin saving tax
and earning good returns. Actual returns on investment are the returns after taxes. Hence,
before choosing to invest, it is best to research and find out all tax considerations and
exemptions available to you to minimise your tax burden.

6. Investment risks:
Every investment carries some degree of risk. The following are some ofthe things you
should know about investment risk:
a. The higher the expected rate of return, the greater the risk.
b. No legitimate investment offers high returns with little or no risk.
c. The past success of a particular investment is no guarantee of future performance.
d. Some investments can’t be easily sold or converted to cash. Check to see if there is
a penalty or charge if you must sell an investment quickly or before its maturity
date.
e. Investments in securities issued by a company with little or no operating history or
published information may involve greater risk.

f. Securities investments, including mutual funds, aren’t federally insured against a

loss in market value.
Although capital markets are regulated, market reaction to events and news are part of the normal
course of a trading day. You should be familiar with what may occur during periodsin which
markets are more volatile.
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5.2 TYPES OF INVESTMENTS OPTIONS

1. Fixed deposits:

Fixed deposits or popularly known as FDs are usually offered by banks and financial
institutions. FDs offer guaranteed returns and hence are the most popular investment type in
India. They have a tenure ranging between 7 days and ten years. Fixed deposit interest rates
range between 3%-7%. Moreover, senior citizens are offered additional interest on their FD
investments. The FD interest rates are higher than the savings account interest rate. The interest
payments are made monthly, quarterly, half-yearly, annually or at the time of maturity as per
investor’s choice.
Investment in tax-saving FDs qualifies for tax benefits under Section 80C of the Income Tax
Act, 1961. Moreover, the interest income is taxable as per the individual investor’s income tax
slab rates. If the interest income exceeds INR 40,000 per annum (INR 50,000 for senior
citizens), then the bank levies a TDS of 10% (20% if PAN Card are not disclosed).

2. Stocks
Investment in stocks is known as an equity investment. Buying stocks or shares would give
investors a part of the ownership of that company. Investors invest in stocks with a motive to
earn regular income in the form of dividends and also gain from capital appreciation. When the
stock prices rise, investors can benefit from selling the shares. Returns from stocks are market-
linked and hence is considered the riskiest investment type. Share prices fluctuate based on
market demand and supply and market sentiments. A bullish sentiment will lead to an
unexpected rally of the market, while a bearish sentiment will lead to a drop in share prices.
Investing in the share market should be done with a long term investment horizon. In the short
term, the market will fluctuate, which might lead to unexpected losses. Investors need to be
patient while investing inequities.
To invest in shares, investors need to have a demat and trading account. A demat account will
hold the shares while a trading account will facilitate the purchase and sale of shares. Short
term capital gains from stock investing (below one year) are taxable at 15%. At the same time,
long term capital gains are taxable at 10%, if the gains are above INR 1,00,000 per annum.

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3. Bonds:

Bonds are fixed-income instruments that offer a fixed rate of interest to the investors against
the money invested. The investors lend money to the Government and corporations and get
regular income in the form of interest. Bond issuers are the borrowers who raise money
publicly or privately for funding various projects. A bond is an instrument that includes
information on the interest, due date, maturity date, and bond terms. Investors of bonds are
paid the entire amount after the bond expires (upon maturity). Investors can also sell the bond
before maturity in the secondary market at higher prices and get profits.

Bonds are considered low-risk investments. However, there are certain risks attached to them.
The most common risk is the default risk. Bond issuers can default on interest and principal
repayment. However, investors can assess the risk in the bond before investing. They can do
so by checking the credit rating of the bond. Bonds with higher credit rating are less likely to
default on the payments than bonds with low credit rating. Bonds with AAA rating are
considered the safest. Having bonds in one’s portfolio helps investors diversify their
investment risk.

4. Mutual Funds:

Mutual funds are investment vehicles that pool money from investors to invest in assets like
equity and debt. A mutual fund invests in shares, government bonds, corporate bonds, and
other assets strategically. The fund house appoints a portfolio manager or fund manager
manages the mutual fund.

Every mutual fund has an investment objective, and the fund’s investments revolve around
this. Mutual funds can be of several types based on the assets. For example, equity funds, debt
funds and hybrid funds are three types of mutual funds based on the asset class. Similarly,
funds can also be categorised based on their strategy, structure and investment option. There
are also mutual funds that offer tax benefits. These are called Equity Linked Savings Scheme.
or ELSS funds. Investment in these funds qualifies for tax deduction under Section 80C of the
Income Tax Act, 1961. Returns from mutual funds are taxable as per the investment holding
period. Short term capital gains are subject to short term capital gains tax (STCG tax). At the
same time, the long term capital gains are subject to long term capital gains tax (LTCG tax).
Furthermore, tax rates vary for equity and debt mutual funds.

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5. Real Estate:

Investing in real estate involves purchase, ownership and management of the physical
property. In other words, any investment in land, building, plant, property, etc. is considered
as real estate investment. Investors main aim of investing in real estate is to sell the asset at a
higher price in the future or generate regular income by way of rent.

Real estate investing best suits investors with a long-term investment horizon. The prices of
land and property do not fluctuate a lot in the short term. Hence investors with long term goals
should look at investing in real estate. Before investing in real estate, investors have to be
prudent and do their research about the market prices and get the papers provided by the seller
authenticated by legal experts.

Real estate investing in India has shifted from owning physical property to owning a part of
the property with low investment. This is possible through REITs or Real Estate Investment
Trusts. Real Estate Investment Trusts (REIT) is an instrument with real estate properties as its
underlying assets and investors can buy a share of REIT to earn steady income in the form of
dividends. These dividends are paid from the rental income from the underlying properties.

6. Public Provident Fund (PPF):

The Public Provident Fund is one of the post office savings schemes launched by the National
Savings Institute. However, some private and nationalised banks are authorised to accept PPF
investments. Returns from the scheme are guaranteed as the Government of India backs it.

Hence are considered as low-risk investments. Furthermore, the PPF investments come with a
15 years lock-in period. Also, in case the investor wishes to extend the scheme, they can do so
in blocks of 5 years. Furthermore, for the purpose of tax savings, one can invest in PPF.

The PPF interest rates are announced every quarter. The current rate is 7.10% for (Jan – March
2021). Also, the interest payments are made every year on the 31st of March. However, the
interest is calculated monthly on the minimum PPF balance between the 5th and 30th each
month. Investment up to INR 1,50,000 per annum, qualifies for tax exemption under Section
80C of the Income Tax Act 1961.

7. Life insurance:

Savings and Income plans and protection plans are two categories of life insurance that come
under the low-risk category. There is no identifiable investment component in such life

20
insurance plans, i.e., these insurance plans do not offer market-linked returns. Instead, these
life insurance plans serve as a robust financial safety net for your family and efficient
protection against life’s uncertainties.

This is one of the safest types of investments in the long-term. In the case of the demise of the
insured during the tenure of the policy, the beneficiaries receive the policy benefits.
Furthermore, the life insurance premium amount is eligible for tax deductions under section
80C of the Income Tax Act, 1961. This may be a good choice for risk-averse investors.

Unit Linked Insurance Plans (ULIPs) are among types of investments in India that come with
tax benefits as well. It is an instrument that offers you the advantage of investment combined
with insurance. The premium you pay to remain invested is divided into two portions. One
part goes towards providing you a protective life cover, while the other is invested in market-
linked instruments or funds. ULIPs also provide deductions under Income Tax Act 1961 as per
prevailing tax laws, since the premium paid is deductible, and the maturity benefits and long-
term capital gains are tax-free.

8. Gold

Gold has always been a go-to asset or investment for Indians. It is also an asset with great
emotional and social value. Buying gold coins, bars, biscuits, and jewellery on auspicious days
has been a tradition in India for ages now. An asset with such sentimental value has also
become popular in different forms.

For example, gold bonds and gold ETFs are gaining popularity recently. Gold is used as a
hedge to protect one’s portfolio against potential market risk. Investing in gold doesn’t provide
any regular income in the form of dividends and interest. However, it is a relatively liquid asset
and can offer inflation-beating returns.

9. National Pension Scheme

National Pension Scheme (NPS) is a scheme suitable for retirement. Investors who wish for
regular income post their retirement and also save tax can invest in NPS. The Central
Government backs them and hence are considered as low-risk investments. An
investor can invest during the period of their employment at regular intervals. The scheme
allows the investor to withdraw a percentage of the accumulated amount post-retirement. Also,
the investor receives the remaining amount monthly as a pension post-retirement.

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NPS has two types of accounts, namely NPS Tier I Account and NPS Tier II Account. Tier I
account is a default account, while the Tier II account is a voluntary account. NPS investments
up to INR 1,50,000 qualify for tax benefits under Section 80C of the Income Tax Act, 1961.
Furthermore, an additional INR 50,000 is eligible for tax deduction under Section
80CCD of the Income Tax Act, 1961.

10. Retirement Plans

A retirement plan is an investment account, with certain tax benefits, where investors invest
their money for retirement. There are a number of types of retirement plans such as workplace
retirement plans, sponsored by your employer, including 401(k) plans and 403(b) plans. If you
don’t have access to an employer-sponsored retirement plan, you could get an individual
retirement plan (IRA) or a Roth IRA.

Retirement plans aren’t a separate category of investment, per se, but a vehicle to buy stocks,
bonds and funds in two tax-advantaged ways. The first, lets you invest pretax dollars (as with
a traditional IRA). The second, allows you to withdraw money without paying taxes on that
money. The risks for the investments are the same as if you were buying the investments
outside of a retirement plan.

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 6. MUTUAL FUND

A mutual fund is a pool of money managed by a professional Fund Manager. It is a trust that
collects money from a number of investors who share a common investment objective and
invests the same in equities, bonds, money market instruments and/or other securities. And the
income / gains generated from this collective investment is distributed proportionately amongst
the investors after deducting applicable expenses and levies, by calculating a scheme’s “Net
Asset Value” or NAV. Simply put, the money pooled in by a large number of investors is what
makes up a Mutual Fund.

Mutual funds are ideal for investors who either lack large sums for investment, or for those
who neither have the inclination nor the time to research the market, yet want to grow their
wealth. The money collected in mutual funds is invested by professional fund managers in line
with the scheme’s stated objective. In return, the fund house charges a small fee which is
deducted from the investment. The fees charged by mutual funds are regulated and are subject
to certain limits specified by the Securities and Exchange Board of India (SEBI).

India has one of the highest savings rate globally. This penchant for wealth creation makes it
necessary for Indian investors to look beyond the traditionally favoured bank FDs and gold
towards mutual funds. However, lack of awareness has made mutual funds a less preferred
investment avenue.

Mutual funds offer multiple product choices for investment across the financial spectrum. As
investment goals vary – post-retirement expenses, money for children’s education or marriage,
house purchase, etc. – the products required to achieve these goals vary too. The Indian mutual
fund industry offers a plethora of schemes and caters to all types of investor needs.

Mutual funds offer an excellent avenue for retail investors to participate and benefit from the
uptrends in capital markets. While investing in mutual funds can be beneficial, selecting the
right fund can be challenging. Hence, investors should do proper due diligence of the fund and
take into consideration the risk-return trade-off and time horizon or consult a professional
investment adviser. Further, in order to reap maximum benefit from mutual fund investments,
it is important for investors to diversify across different categories of funds such as equity, debt
and gold.

23
While investors of all categories can invest in securities market on their own, a mutual fund is
a better choice for the only reason that all benefits come in a package.

6.1 History of Mutual Funds in India

A strong financial market with broad participation is essential for a developed economy. With
this broad objective India’s first mutual fund was establishment in 1963, namely, Unit Trust of
India (UTI), at the initiative of the Government of India and Reserve Bank of India ‘with a
view to encouraging saving and investment and participation in the income, profits and gains
accruing to the Corporation from the acquisition, holding, management and disposal of
securities’.

In the last few years the MF Industry has grown significantly. The history of Mutual Funds in
India can be broadly divided into five distinct phases as follows:

FIRST PHASE - 1964-1987

The Mutual Fund industry in India started in 1963 with formation of UTI in 1963 by an Act of
Parliament and functioned under the Regulatory and administrative control of the Reserve
Bank of India (RBI). In 1978, UTI was de-linked from the RBI and the Industrial Development
Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. Unit
Scheme 1964 (US ’64) was the first scheme launched by UTI. At the end of 1988, UTI had
₹6,700 crores of Assets Under Management (AUM).

SECOND PHASE - 1987-1993 - ENTRY OF PUBLIC SECTOR MUTUAL FUNDS

The year 1987 marked the entry of public sector mutual funds set up by Public Sector banks
and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India
(GIC). SBI Mutual Fund was the first ‘non-UTI’ mutual fund established in June 1987,
followed by Canbank Mutual Fund (Dec. 1987), Punjab National Bank Mutual Fund (Aug.
1989), Indian Bank Mutual Fund (Nov 1989), Bank of India (Jun 1990), Bank of Baroda
Mutual Fund (Oct. 1992). LIC established its mutual fund in June 1989, while GIC had set up
its mutual fund in December 1990. At the end of 1993, the MF industry had assets under
management of ₹47,004 crores.

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THIRD PHASE - 1993-2003 - ENTRY OF PRIVATE SECTOR MUTUAL FUNDS
The Indian securities market gained greater importance with the establishment of SEBI in April
1992 to protect the interests of the investors in securities market and to promote the
development of, and to regulate, the securities market.

In the year 1993, the first set of SEBI Mutual Fund Regulations came into being for all mutual
funds, except UTI. The erstwhile Kothari Pioneer (now merged with Franklin Templeton MF)
was the first private sector MF registered in July 1993. With the entry of private sector funds
in 1993, a new era began in the Indian MF industry, giving the Indian investors a wider choice
of MF products. The initial SEBI MF Regulations were revised and replaced in 1996 with a
comprehensive set of regulations, viz., SEBI (Mutual Fund) Regulations, 1996 which is
currently applicable.

The number of MFs increased over the years, with many foreign sponsors setting up mutual
funds in India. Also the MF industry witnessed several mergers and acquisitions during this
phase. As at the end of January 2003, there were 33 MFs with total AUM of ₹1,21,805 crores,
out of which UTI alone had AUM of ₹44,541 crores.

FOURTH PHASE - SINCE FEBRUARY 2003 – APRIL 2014

In February 2003, following the repeal of the Unit Trust of India Act 1963, UTI was bifurcated
into two separate entities, viz., the Specified Undertaking of the Unit Trust of India (SUUTI)
and UTI Mutual Fund which functions under the SEBI MF Regulations. With the bifurcation
of the erstwhile UTI and several mergers taking place among different private sector funds, the
MF industry entered its fourth phase of consolidation.

Following the global melt-down in the year 2009, securities markets all over the world had
tanked and so was the case in India. Most investors who had entered the capital market during
the peak, had lost money and their faith in MF products was shaken greatly. The abolition of
Entry Load by SEBI, coupled with the after-effects of the global financial crisis, deepened the
adverse impact on the Indian MF Industry, which struggled to recover and remodel itself for
over two years, in an attempt to maintain its economic viability which is evident from the
sluggish growth in MF Industry AUM between 2010 to 2013.

25
FIFTH (CURRENT) PHASE – SINCE MAY 2014
Taking cognisance of the lack of penetration of MFs, especially in tier II and tier III cities, and
the need for greater alignment of the interest of various stakeholders, SEBI introduced several
progressive measures in September 2012 to "re-energize" the Indian Mutual Fund industry and
increase MFs’ penetration. In due course, the measures did succeed in reversing the negative
trend that had set in after the global melt-down and improved significantly after the new
Government was formed at the Center. Since May 2014, the Industry has witnessed steady
inflows and increase in the AUM as well as the number of investor folios (accounts).

 The Industry’s AUM crossed the milestone of ₹10 Trillion (₹10 Lakh Crore) for the
first time as on 31st May 2014 and in a short span of about three years the AUM size
had increased more than two folds and crossed ₹20 trillion (₹20 Lakh Crore) for the
first time in August 2017. The AUM size crossed ₹30 trillion (₹30 Lakh Crore) for the
first time in November 2020.
 The overall size of the Indian MF Industry has grown from ₹7.01 trillion as on 31st
March 2013 to ₹39.42 trillion as on 31st March 2023, more than 5-fold increase in a
span of 10 years.
 The MF Industry’s AUM has grown from ₹21.36 trillion as on March 31, 2018 to
₹39.42 trillion as on March 31, 2023, around 2-fold increase in a span of 5 years.
 The no. of investor folios has gone up from 7.13 crore folios as on 31-Mar-2018 to
14.57 crore as on 31-Mar-2023, more than 2-fold increase in a span of 5 years.
 On an average 12.40 lakh new folios are added every month in the last 5 years since
February 2018.
The growth in the size of the industry has been possible due to the twin effects of the regulatory
measures taken by SEBI in re-energising the MF Industry in September 2012 and the support
from mutual fund distributors in expanding the retail base.

MF Distributors have been providing the much needed last mile connect with investors,
particularly in smaller towns and this is not limited to just enabling investors to invest in
appropriate schemes, but also in helping investors stay on course through bouts of market
volatility and thus experience the benefit of investing in mutual funds.

26
MF distributors have also had a major role in popularising Systematic Investment Plans (SIP)
over the years. In April 2016, the no. of SIP accounts has crossed 1 crore mark and as on 31st
March 2023 the total no. of SIP Accounts are 6.36 crore.

To make informed decisions as an investor, one must become familiar with the terms that are
often used alongside mutual funds. Some of them are explained below:

AMC – Asset Management Company

AMC or Asset Management Company is an institution that manages the funds of the investors.
All AMCs must register themselves with SEBI, and they operate under the SEBI guidelines.
The AMC can introduce several funds to meet the different objectives of the investors. The
AMC takes responsibility for collecting money from investors, investing the money in various
funds, monitoring the funds’ performance and distributing the returns proportionately.

NAV – Net Asset Value

Net Asset Value or NAV is another common mutual fund terminology that defines the price of
a Mutual fund unit. Just like the stocks have a share price, mutual funds have NAV. For
example, if you are buying 100 units of a mutual fund, then you must buy it at the NAV.
The significance of NAV is that it acts as an indicator of the funds' performance over a period.
If you track the NAV of the fund for a certain period, then you can gauge how the fund is
performing and make an informed investment decision.

SIP – Systematic Investment Plan

The Systematic Investment Plan or SIP is one of the most commonly used mutual fund terms.
SIP is essentially a method of investing in mutual funds wherein you can invest a small amount
at periodic intervals (it can be weekly, monthly or quarterly). It is an excellent option for small
investors like daily wage earners to get exposure to investing in mutual funds.
Today, investors can start a SIP with as little as Rs. 500 per month. Another significant feature
of SIP is that it allows you to link your bank account to your investment account, and the pre-
decided amount gets automatically deducted at the specific date. This helps you be disciplined
with your investment.

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STP – Systematic Transfer Plan
A Systematic Transfer Plan gives you the flexibility to use the funds in a disciplined manner.
For example, if you wish to invest Rs. 1 lakh in equity mutual funds, instead of investing the
entire amount at once, and being exposed to high-risk, you can invest the amount in debt funds
of the same fund house and choose STP.

When you do this, a predetermined amount will be transferred to an equity fund at a fixed
interval (either weekly or monthly) as decided by you. Over a period, the full amount gets
transferred to equity funds and thus safeguards your investment from market volatility. After
specific years, if you feel that you have not earned enough returns from your investment in
equity funds, you can again opt for STP and transfer the amount to debt funds.

SWP – Systematic Withdrawal Plan

As the term suggests, SWP allows you to withdraw the accumulated funds over a period.
Investors also use this as a source of pension after their retirement. For example, if you start a
SIP and invest Rs. 5000 per month for 30 years, your investment value would stand at Rs. 18
lakhs, and considering you earn 12% returns annually, the funds accumulated in your account
would be approximately Rs. 1.5 crores. So, when you attain the retirement age, you can choose
to withdraw a predetermined amount at specified intervals.

AUM – Asset Under Management

AUM or Asset Under Management, indicates the total sum of investors and the size of the
assets controlled by the AMC. The AUM of the fund keeps fluctuating through the day, due to
the new investments made, and the redemptions that are done every day. It is one of the most
important parameters that the investors must consider for judging the performance and
credibility of the AMC.

Exit Load
Exit load is a mutual fund terminology used to denote the fees that the investors must pay when
they exit from a mutual fund. Generally, the AMCs levy this charge to dissuade the investors
from withdrawing their funds. These are some of the frequently used terms while investing in
mutual funds. It is important to understand their meaning and implications to achieve your
financial goals and earn a good return on your investments.

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6.2 Advantages of Mutual Fund

1. Professional Management
Investors may not have the time or the required knowledge and resources to conduct their
research and purchase individual stocks or bonds. A mutual fund is managed by full-time,
professional money managers who have the expertise, experience and resources to actively
buy, sell, and monitor investments. A fund manager continuously monitors investments and
rebalances the portfolio accordingly to meet the scheme’s objectives. Portfolio management by
professional fund managers is one of the most important advantages of a mutual fund.

2. Risk Diversification
Buying shares in a mutual fund is an easy way to diversify your investments across many
securities and asset categories such as equity, debt and gold, which helps in spreading the risk
- so you won't have all your eggs in one basket. This proves to be beneficial when an underlying
security of a given mutual fund scheme experiences market headwinds. With diversification,
the risk associated with one asset class is countered by the others. Even if one investment in
the portfolio decreases in value, other investments may not be impacted and may even increase
in value. In other words, you don’t lose out on the entire value of your investment if a particular
component of your portfolio goes through a turbulent period. Thus, risk diversification is one
of the most prominent advantages of investing in mutual funds.

3. Affordability & Convenience (Invest Small Amounts)

For many investors, it could be more costly to directly purchase all of the individual securities
held by a single mutual fund. By contrast, the minimum initial investments for most mutual
funds are more affordable.

4. Liquidity
You can easily redeem (liquidate) units of open ended mutual fund schemes to meet your
financial needs on any business day (when the stock markets and/or banks are open), so you
have easy access to your money. Upon redemption, the redemption amount is credited in your
bank account within one day to 3-4 days, depending upon the type of scheme e.g., in respect
of Liquid Funds and Overnight Funds, the redemption amount is paid out the next business
day.

29
However, please note that units of close-ended mutual fund schemes can be redeemed only on
maturity. Likewise, units of ELSS have a 3-year lock-in period and can be liquidated only
thereafter.

5. Low Cost
An important advantage of mutual funds is their low cost. Due to huge economies of scale,
mutual funds schemes have a low expense ratio. Expense ratio represents the annual fund
operating expenses of a scheme, expressed as a percentage of the fund’s daily net assets.
Operating expenses of a scheme are administration, management, advertising related expenses,
etc. The limits of expense ratio for various types of schemes has been specified under
Regulation 52 of SEBI Mutual Fund Regulations, 1996.

6. Well-Regulated
Mutual Funds are regulated by the capital markets regulator, Securities and Exchange Board
of India (SEBI) under SEBI (Mutual Funds) Regulations, 1996. SEBI has laid down stringent
rules and regulations keeping investor protection, transparency with appropriate risk mitigation
framework and fair valuation principles.

7. Tax Benefits
Investment in ELSS upto ₹1,50,000 qualifies for tax benefit under section 80C of the Income
Tax Act, 1961. Mutual Fund investments when held for a longer term are tax efficient.

8. Flexibility

Mutual funds offer the flexibility to invest in smaller amounts. That means you don't need a
lot of money to invest in mutual funds. You can invest according to your income and cash
flow. For example, if you depend on a monthly salary, then you can select the SIP (Systematic
Investment Plan) mode of investment and invest a fixed amount every month or at regular
intervals.

9. Diversification

Diversification is another advantage of mutual funds. It lowers the risks involved in building
an investment portfolio and hence reduces the risk for the investors. Because mutual funds
contain multiple securities, investors' gains are safeguarded even if there is a drop in some of
the securities in their portfolios.

30
10. 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, the historical
performance of the fund, fund manager’s qualification, and track records are known. The NAV
(net asset value) of the fund is updated every day.

6.3 Risk Factors in MF

STANDARD RISK FACTORS

 Mutual Fund Schemes are not guaranteed or assured return products.
 Investment in Mutual Fund Units involves investment risks such as trading volumes,
settlement risk, liquidity risk, default risk including the possible loss of principal.
 As the price / value / interest rates of the securities in which the Scheme invests
fluctuates, the value of investment in a mutual fund Scheme may go up or down.
 In addition to the factors that affect the value of individual investments in the Scheme,
the NAV of the Scheme may fluctuate with movements in the broader equity and bond
markets and may be influenced by factors affecting capital and money markets in
general, such as, but not limited to, changes in interest rates, currency exchange rates,
changes in Government policies, taxation, political, economic or other developments
and increased volatility in the stock and bond markets.
 Past performance does not guarantee future performance of any Mutual Fund Scheme.

SPECIFIC RISK FACTORS

RISKS ASSOCIATED WITH INVESTMENTS IN EQUITIES

Risk of losing money:

Investments in equity and equity related instruments involve a degree of risk and investors
should not invest in the equity schemes unless they can afford to take the risk of possible loss
of principal.

Price Risk:
Equity shares and equity related instruments are volatile and prone to price fluctuations on a
daily basis.
31
Liquidity Risk for listed securities:
The liquidity of investments made in the equities may be restricted by trading volumes and
settlement periods. Settlement periods may be extended significantly by unforeseen
circumstances. While securities that are listed on the stock exchange carry lower liquidity risk,
the ability to sell these investments is limited by the overall trading volume on the stock
exchanges. The inability of a mutual fund to sell securities held in the portfolio could result in
potential losses to the scheme, should there be a subsequent decline in the value of securities
held in the scheme portfolio and may thus lead to the fund incurring losses till the security is
finally sold.

Event Risk:
Price risk due to company or sector specific event.

RISKS ASSOCIATED WITH INVESTMENT IN DEBT SECURITIES AND MONEY

MARKET INSTRUMENTS

Debt Securities are subject to the risk of an issuer’s inability to meet principal and interest
payments on the obligation (Credit Risk) on the due date(s) and may also be subject to price
volatility due to such factors as interest rate sensitivity, market perception of the
creditworthiness of the issuer and general market liquidity (Market Risk).

The timing of transactions in debt obligations, which will often depend on the timing of the
Purchases and Redemptions in the Scheme, may result in capital appreciation or depreciation
because the value of debt obligations generally varies inversely with the prevailing interest
rates.

Interest Rate Risk

Market value of fixed income securities is generally inversely related to interest rate movement.
Generally, when interest rates rise, prices of existing fixed income securities fall and when
interest rates drop, such prices increase. Accordingly, value of a scheme portfolio may fall if
the market interest rate rise and may appreciate when the market interest rate comes down. The
extent of fall or rise in the prices depends upon the coupon and maturity of the security. It also
depends upon the yield level at which the security is being traded.

32
Credit Risk
This is risk associated with default on interest and /or principal amounts by issuers of fixed
income securities. In case of a default, scheme may not fully receive the due amounts and NAV
of the scheme may fall to the extent of default. Even when there is no default, the price of a
security may change with expected changes in the credit rating of the issuer. It may be
mentioned here that a government security is a sovereign security and is safer. Corporate bonds
carry a higher amount of credit risk than government securities. Within corporate bonds also
there are different levels of safety and a bond rated higher by a rating agency is safer than a
bond rated lower by the same rating agency.

Spread Risk
Credit spreads on corporate bonds may change with varying market conditions. Market value
of debt securities in portfolio may depreciate if the credit spreads widen and vice versa.
Similarly, in case of floating rate securities, if the spreads over the benchmark security / index
widen, then the value of such securities may depreciate.

Liquidity Risk
Liquidity risk refers to the ease with which securities can be sold at or near its valuation yield-
to-maturity (YTM) or true value. Liquidity condition in market varies from time to time. The
liquidity of a bond may change, depending on market conditions leading to changes in the
liquidity premium attached to the price of the bond. In an environment of tight liquidity,
necessity to sell securities may have higher than usual impact cost. Further, liquidity of any
particular security in portfolio may lessen depending on market condition, requiring higher
discount at the time of selling.

The primary measure of liquidity risk is the spread between the bid price and the offer price
quoted by a dealer. Trading volumes, settlement periods and transfer procedures may restrict
the liquidity of some of these investments. Different segments of the Indian financial markets
have different settlement periods, and such periods may be extended significantly by
unforeseen circumstances. Further, delays in settlement could result in temporary periods when
a portion of the assets of the Scheme are not invested and no return is earned thereon or the
Scheme may miss attractive investment opportunities.

33
At the time of selling the security, the security may become illiquid, leading to loss in value of
the portfolio. The purchase price and subsequent valuation of restricted and illiquid securities
may reflect a discount, which may be significant, from the market price of comparable
securities for which a liquid market exists.

Counterparty Risk
This is the risk of failure of the counterparty to a transaction to deliver securities against
consideration received or to pay consideration against securities delivered, in full or in part or
as per the agreed specification. There could be losses to the fund in case of a counterparty
default.

Prepayment Risk
This arises when the borrower pays off the loan sooner than the due date. This may result in a
change in the yield and tenor for the mutual fund scheme. When interest rates decline,
borrowers tend to pay off high interest loans with money borrowed at a lower interest rate,
which shortens the average maturity of Asset-backed securities (ABS). However, there is some
prepayment risk even if interest rates rise, such as when an owner pays off a mortgage when
the house is sold or an auto loan is paid off when the car is sold. Since prepayment risk increases
when interest rates decline, this also introduces reinvestment risk, which is the risk that the
principal may only be reinvested at a lower rate.

Re-investment Risk
Investments in fixed income securities carry re-investment risk as the interest rates prevailing
on the coupon payment or maturity dates may differ from the original coupon of the bond (the
purchase yield of the security). This may result in final realized yield to be lower than that
expected at the time

The additional income from reinvestment is the "interest on interest" component. There may
be a risk that the rate at which interim cash flows can be reinvested are lower than that originally
assumed.

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6.4 TAX REGIME SPECIFIC TO MUTUAL FUND INVESTORS IN INDIA
Applicable for the Financial Year 2022-23 subject to enactment of the Finance Bill, 2022

I. TAX RATES FOR MUTUAL FUND INVESTORS

Table 1: Tax regime for equity oriented funds

EQUITY ORIENTED FUNDS (Subject to STT3)

Capital Gains
Tax10 TDS on TDS6,7 on Income
Tax Status Tax on Distributed Income
Capital Distributed Income
of Investor Short Long under IDCW@ Option
Gains6,7 under IDCW@ Option
Term Term
Resident
Individual /
HUF / AOP
NIL 10%9
/ BOI /
Domestic
Companies 15% 10%$12 At the applicable Tax slab rate

STCG -
15%
NRIs 4
20%2
LTCG -
10%$12
Source: AMFI

Table 2: Tax regime for other than equity oriented funds

OTHER THAN EQUITY ORIENTED FUNDS

Capital Gains Tax11 Tax on TDS6,7 on
Tax Status
Distributed TDS on Distributed
of Short
Long Term Income under Capital Gains6,7 Income under
Investor Term IDCW@ Option IDCW@ Option
Resident At the
Individual / applicable
HUF / AOP Tax slab
/ BOI / rate At the applicable
20%* NIL 10%9
15% / 13 Tax slab rate
Domestic
22%14/
Companies
25%15/
/ Firms
30%

• 20*(Listed STCG – 30%

Units)
At the LTCG –
applicable At the applicable
NRIs 20%2
Tax slab •
4
Tax slab rate
rate 10%$5(Unlisted • 20*(Listed
Units) Units)

35
 OTHER THAN EQUITY ORIENTED FUNDS

•
10%$5(Unlisted
Units)5

Source: AMFI

Tax & TDS are subject to applicable Surcharge and Health & Education Cess at the rate of 4%.

Table 3: Surcharge Rate as a percentage of Income-tax

Income > ₹50 Income > ₹1 Income > ₹2

Income < Income >
ax Status lakh but < /= crore but < /= crore but < /=
₹50 lakh ₹5 crore
₹1 crore ₹2 crore ₹5 crore
Individual / HUF/
AOP (resident & NIL 10% 15% 25% 37%
foreign)***
Income < Income > ₹1
Income > ₹10
Tax Status /= ₹1 crore, but < /= - -
crore
crore ₹10 crore
Partnership Firm
NIL 12% 12% - -
(Domestic / foreign)
Domestic company NIL 7% 12% - -
Domestic company
(opting for new tax NIL 10% 10% - -
regime)
Foreign company NIL 2% 5% - -
Source: AMFI

The Finance Bill, 2022 has proposed to rationalise the surcharge rates in the case of an

association of persons consisting of only companies as its members as under —

Table 4: Surcharge Rate in case of association persons

Particulars Rate

Income > ₹50 lakh but <= ₹1 crore 10%

Income > ₹1 crore 15%
Source: AMFI

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 Table 5: Securities Transaction Tax (STT) in respect of Units equity-oriented mutual
fund Schemes

Transaction Rates Payable by

Purchase of units of equity-oriented mutual fund Nil Not Appliable
Sale of units of equity-oriented mutual fund (delivery based) 0.001% Seller
Sale of units of equity-oriented mutual fund (non-delivery based) 0.025% Seller
Sale of units of an equity-oriented fund to the Mutual Fund 0.001% Seller
Source: AMFI

Various Categories of MF Schemes which fall under "Other than Equity OrientedFunds”:

 Liquid Funds /Overnight Funds / Money Market Funds / Income Funds (Debt Funds) /

Gilt Funds

 Hybrid Fund (Equity exposure < 65%)

 Gold ETFs / Bond ETF / Liquid ETF

 Fund of Funds (Domestic) other than Fund of funds as defined under the “Equity

Oriented Fund” definition under section 112A of the Act.

 Fund of Funds Investing Overseas

 Infrastructure Debt Funds

6.5 WHAT IS NAV

NAV stands for Net Asset Value. The performance of a mutual fund scheme is denoted by its
NAV per unit. NAV per unit is the market value of securities of a scheme divided by the total
number of units of the scheme on a given date. For example, if the market value of securities
of a mutual fund scheme is ₹200 lakh and the mutual fund has issued 10 lakh units of ₹ 10 each
to the investors, then the NAV per unit of the fund is ₹ 20 (i.e., ₹200 lakh/10 lakh).

Since market value of securities changes every day, NAV of a scheme also varies on day-to-
day basis. NAVs of mutual fund schemes are published on respective mutual funds’ websites

37
as well as AMFI’s website daily. Unlike stocks, where the price is driven by the stock market
and changes from minute-to-minute, NAVs of mutual fund schemes are declared at the end of
each trading day after markets are closed, in accordance with SEBI Mutual Fund Regulations.
Further, Units of mutual fund schemes under all scheme (except Liquid & Overnight funds)
are allotted only at prospective NAV, i.e., the NAV that would be declared at the end of the
day, based on the closing market value of the securities held in the respective schemes.
A mutual fund may accept applications even after the cut-off time, but you will get the NAV
of the next business day. Further, the cut-off time rules apply for redemptions too.

6.6 Structure of Mutual Funds in India

The structure of Mutual Funds in India is a three-tier one that comes with other substantial
components. It is not only about varying AMCs or banks creating or floating a variety of mutual
fund schemes. However, there are a few other players that play a major role into the mutual
fund structure. There are three distinct entities involved in the process – the sponsor (who
creates a Mutual Fund), trustees and the asset management company (which oversees the fund
management). The structure of Mutual Funds has come into existence due to SEBI (Securities
and Exchange Board of India) Mutual Fund Regulations, 1996 that plays the role of a primary
watchdog in all of the transactions. Under these regulations, a Mutual Fund is created as a
Public Trust. We will look into the structure of Mutual Funds in a detailed manner.

Figure 1: Structure of Mutual Funds in India

Source: Fincash

38
An Overview

In the mutual fund business, there are almost 30-40 companies and firms that are referred to as
the fund houses. These are registered and have got the allowance to operate mutual fund
schemes through a government regulatory body, known as the Securities and Exchange Board
of India (SEBI). It is such schemes that are purchased and sold daily by investors, who are the
common people. Basically, it works as Mutual Fund Business > Fund House > Individual
Scheme > Investors.

The Structure of Mutual Fund

The Fund Sponsor

The Fund Sponsor is the first layer in the three-tier structure of Mutual Funds in India. SEBI
regulations say that a fund sponsor is any person or any entity that can set up a Mutual Fund to
earn money by fund management. This fund management is done through an associate
company which manages the investment of the fund. A sponsor can be seen as the promoter of
the associate company. A sponsor has to approach SEBI to seek permission for a setting up a
Mutual Fund. However, a sponsor is not allowed to work alone. Once SEBI agrees to the
inception, a Public Trust is formed under the Indian Trust Act, 1882 and is registered with
SEBI. After the successful creation of the trust, trustees are registered with SEBI and appointed
to manage the trust, protect the unit holder’s interest and to comply by the mutual fund
regulations of SEBI. Subsequently, an asset management company is created by the sponsor
that should be complying with the Companies Act, 1956 to regulate the management of funds.
Considering that sponsor is the primary entity that promotes the mutual fund company and that
the mutual funds are going to regulate public money, there are eligibility criteria given by SEBI
for the fund sponsor:
 The sponsor must have experience in financial services for a minimum of five years
with a positive Net worth for all the previous five years.
 The net worth of the sponsor in the immediate last year has to be greater than the Capital
contribution of the AMC.
 The sponsor must show profits in at least three out of five years which includes the last
year as well.
 The sponsor must have at least 40% share in the net worth of the asset management
company.

39
As clear as it could be, the role of a sponsor is quite vital and must carry highest amount of
credibility. The strict and rigorous norms define that the sponsor must have adequate liquidity
as well as faithfulness to return the money of investors in case there is any financial crisis or
meltdown. Thus, any entity that fulfills the above criteria can be termed as a sponsor of the
Mutual Fund.

Trust and Trustees

Trust and trustees form the second layer of the structure of Mutual Funds in India. Also known
as the protectors of the fund, trustees are generally employed by the fund sponsor. Just as can
be comprehended with the name, they have a critical role to play as far as maintaining the
investors’ trust and tracking the fund’s growth are concerned.

A trust is created by the fund sponsor in favour of the trustees, through a document called a
trust Deed. The trust is managed by the trustees and they are answerable to investors. They can
be seen as primary guardians of fund and assets. Trustees can be formed by two ways – a
Trustee Company or a Board of Trustees. The trustees work to monitor the activities of the
Mutual Fund and check its compliance with SEBI (Mutual Fund) regulations. They also
monitor the systems, procedures, and overall working of the asset management company.
Without the trustees’ approval, AMC cannot Float any scheme in the Market.

The trustees have to report to SEBI every six months about the activities of the AMC. Also,
SEBI has established tightened transparency rules to avert any type of conflict of interest
between the AMC and the sponsor. Therefore, it is critical for trustees to behave independently
and take satisfactory measures to keep the hard-earned money of investors protected. Even
trustees have to get registered under SEBI. And furthermore, SEBI regulates their registration
by revoking or suspending the registry if any condition is found to be breached.

Asset Management Companies

Asset Management Companies are the third layer in the structure of Mutual Funds. Registered
under SEBI, it is a type of company that is created under the Companies Act. An AMC is meant
to float a variety of mutual fund schemes that are in compliance with the requirements of
investors and the nature of a market. The asset management company acts as the fund manager
or as an investment manager for the trust. A small fee is paid to the AMC for managing the
fund. The AMC is responsible for all the fund-related activities. It initiates various schemes

40
and launches the same. Furthermore, it also creates mutual funds with the sponsor and the
trustee and regulate its development. The AMC is bound to manage funds and provide services
to the investor. It solicits these services with other elements like brokers, auditors, bankers,
registrars, lawyers, etc. and works with them by getting into an agreement together. To ensure
that there is no conflict between the AMCs, there are certain restrictions imposed on the
business activities of the companies.

Other Components in the Structure of Mutual Funds

Custodian
A custodian is one such entity that is responsible for the safekeeping of the securities of the
Mutual Fund. Registered under SEBI, they manage the investment account of the Mutual Fund,
ensure the delivery and transfer of the securities. Also, custodians allow investors to upgrade
their holdings at a specific point of time and assist them in monitoring their investments. They
also collect and track the bonus issue, dividends & interests received on the Mutual Fund
investment.

Registrar and Transfer Agents (RTAS)

RTAs act as an essential link between investors and fund managers. To the fund managers,
they serve by keeping them updated with the details of investors. And, to the investors, they
serve by delivering the advantages of the fund. Even they are registered under SEBI and
execute a variety of tasks and responsibilities. These are the entities who provide services to
Mutual Funds. RTAs are more like the operational arm of Mutual Funds. Since the operations
of all Mutual Fund companies are similar, it is economical in scale and cost effective for all the
44 AMCs to seek the services of RTAs. CAMS, Karvy, Sundaram, Principal, Templeton, etc
are some of the well-known RTAs in India.
Their services include:
 Processing investors’ application
 Keeping a record of investors’ details
 Sending out account statements to the investors
 Sending out periodic reports
 Processing the payouts of the dividends
 Updating the investor details i.e. adding new members and removing those who have

withdrawn from the fund.

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Auditor
Auditors audit and scrutinise record books of accounts and annual reports of various schemes.
They are known as the independent watchdogs who have a responsibility of auditing the
financials of sponsor, trustees and the AMC. Each AMC hires an independent auditor to analyse
the books so as to keep their transparency and integrity intact.

Brokers
Mainly, the brokers work with a responsibility to attract more investors and to disseminate the
funds. AMC uses the services of brokers to buy and sell securities on the stock market.
Moreover, brokers have to study the market and foresee the market’s future movement. The
AMCs uses research reports and recommendations from many brokers to plan their market
moves.

Example of Three-Tiered Fund House Structure

Although there are several companies and organizations that are running according to this
system, however, one of the major companies is the Aditya Birla Sun Life Mutual Fund. Its
structure goes the following way:
Sponsor A joint venture between Sun Life (India) AMC Investment Inc. and Aditya Birla
Capital Limited that is based in Canada.
Trustee Aditya Birla Sun Life Trustee Pvt. Ltd.
AMC Aditya Birla Sun Life AMC Limited.

6.7 Expense Ratio

Under SEBI (Mutual Funds) Regulations, 1996, Mutual Funds are permitted to charge certain
operating expenses for managing a mutual fund scheme – such as sales & marketing /
advertising expenses, administrative expenses, transaction costs, investment management fees,
registrar fees, custodian fees, audit fees – as a percentage of the fund’s daily net assets.
All such costs for running and managing a mutual fund scheme are collectively referred to as
‘Total Expense Ratio’ (TER)

The TER is calculated as a percentage of the Scheme’s average Net Asset Value (NAV). The
daily NAV of a mutual fund is disclosed after deducting the expenses.

42
Currently, in India, the expense ratio is fungible, i.e., there is no limit on any particular type of
allowed expense as long as the total expense ratio is within the prescribed limit. The regulatory
limits of TER that can be incurred/charged to the fund by a Mutual Fund AMC have been
specified under Regulation 52 of SEBI Mutual Fund Regulations.
Table 6: TER Limit (effective from April 1,2020)

Maximum TER as a percentage of daily net assets

Assets Under Management
(AUM)
TER for Equity funds TER for Debt funds

On the first Rs. 500 crores 2.25% 2.00%

On the next Rs. 250 crores 2.00% 1.75%

On the next Rs. 1,250 crores 1.75% 1.50%

On the next Rs. 3,000 crores 1.60% 1.35%

On the next Rs. 5,000 crores 1.50% 1.25%

Total expense ratio reduction Total expense ratio reduction

of 0.05% of 0.05%
for every increase of Rs.5,000 for every increase of Rs.5,000
On the next Rs. 40,000 crores
crores of crores of
daily net assets or part daily net assets or part
thereof. thereof.

Above Rs. 50,000 crores 1.05% 0.80%

Source: AMFI

In addition, mutual funds have been allowed to charge up to 30 bps more, if the new inflows
from retail investors from beyond top 30 cities (B30) cities are at least (a) 30% of gross new
inflows in the scheme or (b) 15% of the average assets under management (year to date) of the

43
scheme, whichever is higher. This is essentially to encourage inflows into mutual funds from
tier - 2 and tier - 3 cities.

TER has a direct bearing on a scheme’s NAV – the lower the expense ratio of a scheme,
the higher the NAV. Thus, TER is an important parameter while selecting a mutual fund
scheme.

As per the current SEBI Regulations, mutual funds are required to disclose the TER of all
schemes on a daily basis on their websites as well as AMFI’s website.

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 7. TYPES OF MUTUAL FUND SCHEME POLICIES IN INDIA
There are several types of mutual funds available for investment, though most mutual funds
fall into one of four main categories which include stock funds, money market funds, bond
funds, and target-date funds. Mutual funds come in many varieties, designed to meet different
investor goals. Mutual funds can be broadly classified based on –

Organisation Structure – Open ended, Close ended, Interval

Management of Portfolio – Actively or Passively Investment

Objective – Growth, Income, Liquidity

Underlying Portfolio – Equity, Debt, Hybrid, Money market instruments, Multi Asset

Thematic / solution oriented – Tax saving, Retirement benefit, Child welfare, Arbitrage

Exchange Traded Funds

Overseas funds

Fund of funds

SCHEME CLASSIFICATION BY ORGANIZATION STRUCTURE

1. Open ended
Open-ended mutual funds are a popular choice for investors seeking a balance between
convenience, diversification, and professional management. Here's a breakdown of their key
features, advantages, and disadvantages:

Key Features:

 Continuous Availability: Unlike closed-ended funds with a fixed number of shares, open-
ended funds constantly offer new shares for purchase (units) and allow investors to redeem
existing ones (sell units) on any business day. This provides high liquidity.

 Priced by NAV: The value of your investment fluctuates based on the net asset value (NAV)
of the underlying assets (stocks, bonds, etc.) held by the fund. The NAV is calculated daily at
the market close.

 Professional Management: A fund manager makes investment decisions on your behalf,

choosing assets that align with the fund's investment objective (growth, income, etc.).
45
 Advantages:

 Liquidity: Open-ended funds offer easy entry and exit, allowing you to invest or withdraw
money at your convenience.

 Diversification: By investing in a single fund, you gain exposure to a variety of assets,

reducing risk compared to holding individual stocks.

 Professional Management: You benefit from the expertise of experienced fund managers
who research and select investments.

 Lower Investment Minimums: Compared to directly buying individual stocks or bonds,

open-ended funds often have lower minimum investment requirements, making them
accessible to a wider range of investors.

 Systematic Investment Plans (SIPs): Many open-ended funds allow you to invest a fixed
amount regularly (monthly, quarterly) through SIPs, fostering a disciplined approach to
investing.

Disadvantages:

 Market Volatility: The value of your investment can fluctuate with the stock market,
potentially leading to losses.

 Fees: Open-ended funds typically charge management fees and expense ratios to cover
operational costs, which can eat into your returns.

 Passive Management: While some open-ended funds are actively managed to outperform the
market, others are passively managed to track a specific index. This may limit potential returns
compared to actively managed funds.

 Reliance on Fund Manager: The performance of your investment hinges on the skill and
decisions of the fund manager.

Open-ended mutual funds offer a convenient and diversified way to invest, suitable for both
beginners and experienced investors. However, it's crucial to understand the risks involved and
choose a fund that aligns with your investment goals and risk tolerance.

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2. Close ended
Close-ended schemes have a fixed maturity date. The units are issued at the time of the initial
offer and redeemed only on maturity. The units of close-ended schemes are mandatorily listed
to provide exit route before maturity and can be sold/traded on the stock exchanges. Closed-
ended mutual funds operate in a distinct way compared to their open-ended counterparts.

Key Features:

 Fixed Number of Shares: Unlike open-ended funds, closed-ended funds raise capital by
issuing a predetermined number of shares during an initial public offering (IPO). Once the
IPO closes, no new shares are created.

 Trading on Exchanges: After the IPO, closed-ended funds trade on secondary markets like
stock exchanges. Investors buy and sell existing shares from other investors, similar to how
they would trade individual stocks.

 Market Price Fluctuations: The price of a closed-ended fund's share can fluctuate on the
stock exchange, independent of the fund's Net Asset Value (NAV). This means the price you
pay to buy a share might be higher or lower than the NAV.

 Potential Discounts or Premiums: Due to supply and demand in the market, closed-ended
funds can trade at a premium (higher than NAV) or a discount (lower than NAV).

Advantages:

 Active Management Strategy: Closed-end funds often employ active management, where
fund managers have the flexibility to invest in assets not readily available in open-ended funds.
This can potentially lead to higher returns.

 Reduced Portfolio Turnover: The fixed number of shares minimizes redemptions, allowing
fund managers to focus on long-term investment strategies without worrying about daily
fluctuations caused by investor exits.

 Potential for Discounts: If a closed-ended fund trades at a discount to its NAV, you could
potentially buy assets for less than their underlying value.

47
 Disadvantages:

 Lower Liquidity: Unlike open-ended funds, closed-ended funds don't offer daily buying and
selling opportunities. Their liquidity depends on the trading activity on the exchange.

 Market Volatility: Closed-ended funds can experience price swings on the exchange,
potentially leading to higher volatility compared to open-ended funds.

 Potential for Premiums: If a closed-ended fund is in high demand, it might trade at a

premium to its NAV. This means you could be paying more than the underlying value of the
assets.

 Higher Fees: Closed-ended funds often have higher expense ratios compared to open-ended
funds due to additional costs associated with exchange listings.

Closed-ended mutual funds can be an attractive option for investors seeking active
management, potential discounts on underlying assets, and a long-term investment approach.
However, be aware of the lower liquidity, potential for premiums, and higher fees associated
with them. Carefully evaluate the fund's investment strategy, discount or premium, and expense
ratios before investing.

3. Interval
An interval fund is a unique blend of open-ended and closed-ended mutual funds.

Here's a breakdown of its key features:

 Periodic Purchases & Redemptions: Unlike open-ended funds with daily transactions,
interval funds don't allow investors to buy or sell shares whenever they want. Instead, they
have designated windows, typically quarterly or annually, for investors to purchase new shares
or redeem existing ones (sell them back to the fund). This limited liquidity provides some
control over the number of investors involved.

 Underlying Assets & Valuation: Similar to open-ended funds, interval funds invest in a
variety of assets like stocks, bonds, or real estate. The value of your investment reflects the
performance of these underlying holdings. While not constantly priced, interval funds aim to
offer shares at a price close to their net asset value (NAV) during redemption windows. This
provides some transparency into the value of your investment.

48
 Potential Benefits:

Interval funds can be attractive for investors seeking:

 Focus on Long-Term Strategy: The limited redemption windows allow fund managers to
focus on long-term investment strategies without worrying about daily fluctuations caused by
investor redemptions. This can potentially lead to better returns.

 Reduced Volatility: Compared to closed-end funds that trade on exchanges and experience
price swings, interval funds offer potentially lower volatility due to the controlled redemption
windows.

Drawbacks to Consider:

Interval funds also have some downsides to be aware of:

 Lower Liquidity: The limited windows for buying and selling can be inconvenient for investors
who need quick access to their money.

 Less Flexibility: Compared to open-ended funds, interval funds offer less flexibility for
investors who want to adjust their holdings more frequently.

In essence, an interval fund is like an investment club with periodic membership drives and
meetings. You can invest during offering periods, and there are designated times throughout
the year to buy in or sell a portion of your membership (shares) back to the club.

49
 SCHEME CLASSIFICATION BY PORTFOLIO MANAGEMENT

1. Active Funds
In Actively managed funds are like ambitious athletes in the investment world, constantly striving
to outplay the market. Unlike passively managed funds that mimic a market index, active funds have
a dedicated team of managers who actively research and select investments. These investment
experts aim to identify undervalued assets with high growth potential or pick stocks poised to benefit
from current trends. This flexibility allows them to explore a wider universe of opportunities beyond
a predetermined set of holdings. The ultimate goal? To outperform a chosen benchmark, like a
market index or a specific investment objective.

Active funds hold the potential for market-beating returns if the fund manager has the skill to identify
opportunities and make strategic investment decisions. This flexibility also allows the fund to adapt
to changing market conditions and capitalize on emerging trends. Additionally, actively managed
funds come in various styles and risk profiles, so you can find one that aligns with your investment
goals, whether it's focusing on specific sectors, growth stocks, or income generation.

However, active management comes with a price. Since it requires a team of analysts and research,
actively managed funds typically have higher expense ratios compared to passive funds. These fees
can eat into your returns if the fund underperforms. The success of an active fund also relies heavily
on the skills and experience of the fund manager. While active management can outperform the
market, it can also underperform, especially in efficient markets. Before investing in an actively
managed fund, carefully research the fund's track record, investment philosophy, and the experience
of the fund manager. Actively managed funds can be a powerful tool for investors seeking to
potentially outperform the market, but careful evaluation and a long-term investment horizon are
crucial to offset the potential risks and fees.

2. Passive Funds
Unlike actively managed funds that chase market-beating returns, passive funds take a more laid-
back approach. They aim to mirror the performance of a specific market index, like the S&P 500,
by holding a basket of assets that replicate the index. This means the fund's performance is
essentially a reflection of the underlying benchmark. Because they don't require a team of analysts
actively picking stocks, passive funds generally boast lower expense ratios, leaving more money
potentially working for you.

Passive investing is a marathon, not a sprint. It encourages a long-term focus, aligning your returns
50
 with the overall market's growth over time. This strategy offers several advantages. Lower fees can
significantly impact your returns, and historically, the market has provided positive returns, which
passive funds allow you to capture without the pressure to outperform it. Additionally, passive funds
offer built-in diversification by holding a variety of assets, spreading out risk. Plus, the holdings are
typically transparent, so you can see exactly what you're invested in.

However, passive funds also come with considerations. Since they track the market, they won't
outperform it. Your returns will essentially mirror the market's performance, minus the fees. You
also have limited control over the specific investments within the fund, and this approach might not
be ideal for short-term gains. Overall, passive funds can be a powerful tool for investors seeking a
low-cost, diversified, and long-term approach to investing in the market's growth, without the
complexities of active management.

Feature Active Funds Passive Funds

Investment Actively managed to outperform Tracks a specific market

Philosophy the market index

Costs Higher expense ratios due to Lower expense ratios due

research and management team to minimal management

Returns Potential for market-beating Matches market

returns, but not guaranteed performance, minus fees

Control & Some control over investment Transparent holdings,

Transparency strategy through fund manager's limited control over
choices, holdings may not be specific investments
transparent

Suitability Investors seeking above-average Investors seeking low-

returns, comfortable with higher cost, diversified, long-
fees and risk term approach

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SCHEME CLASSIFICATION BY INVESTMENT OBJECTIVES
Mutual funds offer products that cater to the different investment objectives of the investors
such as –
 Capital Appreciation (Growth)
 Capital Preservation
 Regular Income
 Liquidity
 Tax-Saving
Mutual funds also offer investment plans, such as Growth and Dividend options, to help tailor
the investment to the investors’ needs.

1. GROWTH FUNDS
Growth Funds are schemes that are designed to provide capital appreciation.
Primarily invest in growth oriented assets, such as equity
Investment in growth-oriented funds require a medium to long-term investment
horizon.
Historically, Equity as an asset class has outperformed most other kind of investments
held over the long term. However, returns from Growth funds tend to be volatile over
the short-term since the prices of the underlying equity shares may change.
Hence investors must be able to take volatility in the returns in the short-term.

2. INCOME FUNDS
The objective of Income Funds is to provide regular and steady income to investors.
Income funds invest in fixed income securities such as Corporate Bonds, Debentures
and Government securities.
The fund’s return is from the interest income earned on these investments as well as
capital gains from any change in the value of the securities.
The fund will distribute the income provided the portfolio generates the required
returns. There is no guarantee of income.
The returns will depend upon the tenor and credit quality of the securities held.

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 3. LIQUID / OVERNIGHT /MONEY MARKET MUTUAL FUNDS
Liquid Schemes, Overnight Funds and Money market mutual fund are investment
options for investors seeking liquidity and principal protection, with commensurate
returns.
– The funds invest in money market instruments* with maturities not exceeding 91
days.
– The return from the funds will depend upon the short-term interest rate prevalent in
the market.
These are ideal for investors who wish to park their surplus funds for short periods.
– Investors who use these funds for longer holding periods may be sacrificing better
returns possible from products suitable for a longer holding period.

SCHEME CLASSIFICATION BY INVESTMENT PORTFOLIO

Mutual fund products can be classified based on their underlying portfolio composition
– The first level of categorization will be on the basis of the asset class the fund invests in, such
as equity / debt / money market instruments or gold.
– The second level of categorization is on the basis of strategies and styles used to create the
portfolio, such as, Income fund, Dynamic Bond Fund, Infrastructure fund, Large-cap/Mid-
cap/Small-cap Equity fund, Value fund, etc.
– The portfolio composition flows out of the investment objectives of the scheme.

53
 8. DATA ANALYSIS AND FINDINGS

The data was collected from 50 respondents by means of Questionnaire and then analysed.

Table 7: Demographic profile of the respondents

Demographic Categories No of respondents Percentage
variables

Gender Male 26 52%

Female 24 48%
Age group Below 30 years 29 58%
31 - 40 years 5 10%
41 - 50 years 10 20%
51 - 60 years 4 8%
Above 60 years 2 4%
Occupation Student 18 36%
Business 8 16%
Professional 2 4%
Salaried employee 19 38%
Retired 2 4%
Housewife 1 2%

Figure 1. represents the percentage of the gender taken up for the research. Out of the total respondents
52% i.e., 26 respondents were males and 48% i.e., 24 respondents were females.

Figure 1: Gender Classification

54
 Figure 2: Age groups

Figure 2. represents the different age group taken up for the research. In this, 58% percent of
the respondents belong to the age group below 30 years, 10% belonging to the age group
between 31 years to 40 years. 20% of the respondents were from the age group 41 – 50 years.
The age group between 51-60 years and those who are above 60 years of age formed 8% each
of the total responses.

Figure 3: Occupation

The figure 3 represents the different occupation the respondents belong to such as student,
business, professional, salaried employee or retired personnel. The study consists of 36% i.e.,
18 out of 50 respondents being student forming the majority. Followed by 38% i.e., 19 out of
50 who are salaried employee and 16% owning a business. Professionals are 4% of the total
respondents and 2% are retired personnel. Remaining 2% are housewives.

55
 Figure 4: Preferred investment options

As represented in figure 4, this stacked bar chart reveals what people are sinking their money
into. Mutual funds take the crown, with a dominant 90% of surveyed individuals choosing
them. Stocks and real estate remain popular options, attracting 48% and 60% of investors
respectively. Gold (52%), fixed deposits (50%), and life insurance (56%) follow suit. However,
it's crucial to remember that this chart highlights the number of investors in each category, not
the total amount invested. Additionally, the data might be specific to a particular group and
may not reflect the broader population's investment habits.

Figure 5: Factors considered before investing

The figure 5 represents the factors considered by individual before investing their money. It
can be seen that majority of the respondents consider the return of investment followed by the
investment risk. Table 2 shows the impact of each factor on individual’s investment decision.
41 out of 50 respondents said that the returns on investment is the most considered factor
before investing. The risk associated with the investment is also most likely to impact the
decision of the investors. Majority of the respondents are neutral towards factors such as tax
saving on the investment, liquidity and the duration of the investment.

56
 Table : Factors considered before investing
Most Likely Neutral Unlikely
Return on investment 41 8 1
Investment Risk 33 15 2
Tax Savings 16 30 4
Liquidity 21 17 12
Investment Period 20 22 8

Figure 6: Investment in Mutual Fund Schemes

Figure 6 represents the percentage of respondents who have invested in mutual fund schemes.
82% of the total respondents have invested whereas, 18% of the respondents have never
invested in a mutual fund schemes policy.

Figure 7: Willingness of investors to invest in mutual fund in future

As shown in figure 7, 88% of the respondents would want to invest in mutual fund in the
future. 10% of the respondents are uncertain if they will invest their money in mutual fund
policies in the future. Remaining 2% do not consider investing their money in mutual fund
policies in the future.

57
 Figure 8: Percentage of income invested towards investment in mutual fund

Figure 8 represents the percentage of the income of the investors contributed towards
investment in mutual fund. 42% of the respondents invested only less than 10% of their income
towards mutual fund. 34% of the respondents invested between 10% to 20% of their income
and only 18% of the respondents contributed between 21% to 30% of their total income
towards investment in mutual fund. The respondents who contributed more than 30%form only
6%.

Figure 9: Reasons for investing in mutual fund

As shown in figure 9, which represents the main factor the investors consider while investing
in mutual fund it was observed that majority of the respondents invested in mutual fund for
the savings purpose followed by long-term financial security. Savings and financial security
is the key feature of a mutual fund. 29 out of 50 respondents consider tax savings sice there
are many tax saving schemes. 24 out of 50 respondents consider the portfolio diversification
to be the reason for investing in mutual fund.

58
 Figure 10: Types of mutual fund invested in

As shown in figure 10, which represents the mutual fund schemes invested by the respondents.
Most of the respondents i.e., in growth, income and liquidity types of schemes. This followed
by close ended, open ended and interval schemes. Most of the respondent wanted to investment
return. 48% of respondents have invested in equity, debt, tax savings etc.

Figure 11: Preferred mutual fund houses

As per the above figure most of the respondents prefer these top 5 mutual fund houses SBI
Mutual Fund, ICICI Mutual Fund, HDFC mutual fund, Canara Robeco Mutual Fund and UTI
Mutual Fund. Further SBI Mutual Fund is most preferred by respondents i.e., 58%. The other
preferred are DSP Blackrock, Aditya Birla Nippon India and Axis Bank.

59
 Figure 12: Investor’s perspective towards mutual fund as an investment
The respondents were asked if they consider mutual fund to be a good investment option. It
was revealed, as shown in the figure 21, that 78% of the respondents consider that mutual
fund is a good investment option. However, 18% of the respondents are not sure about the
same. 4% of the respondents answered that they do not consider mutual fund to be a good
investment option.

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 9. CONCLUSION

The study shows that most of respondents are interested to invest in mutual fund as an
investment option. Most of them are of the opinion that they want to invest in mutual funds for
return on investment, long term financial security and saving purpose. Others are of the opinion
that they want portfolio diversification and wealth creation. Moreover, as far as the
demographic factors are concerned, gender, income and level of education have significantly
influence the investors’ attitude towards mutual funds. As far as the benefits provided by
mutual funds are concerned, return potential and liquidity have been perceived to be most
attractive by the invertors’ followed by flexibility, transparency and affordability. Apart form
the above, in India there is a lot of scope for the growth of mutual fund companies provided
that the funds satisfy everybody’s needs and sharp improvements in service standards and
disclosure. Respondents are of the opinion that they think investing in mutual fund is a very
good option. Among the all mutual fund houses listed in the questionnaire SBI Mutual Fund
tops the list followed by ICICI, Canara Robeco etc.

SBI mutual is the most preferred by the respondents in the Indian mutual fund industry. In
today’s competitive world, customer satisfaction has become an important aspect to retain the
customers, not only to grow but also to serve. Increased competition, wide range of product
offerings and multiple distribution channels cause companies to value satisfied and highly
profitable customers. Customer service is the critical success factor in a company and providing
top notch customer service differentiates great customer service from indifferent customer
service.

The aggressive market that can tap any individual is financial services. Investors have their
individual risk appetite and believe in the market they are entering in. In this volatile market
environment mutual funds play an active role not only in promoting a healthy capital market
but also increase liquidity in the money market. They have been identified as one of the
important factor pushing up the market prices of securities. The analysis of the above study
helps us to understand the attitude and behaviour of the investor based on their preferences.
Based on the above approach, it can be noted that investors ought to be cautious in selecting
the schemes, sectors and various asset management companies. Mutual fund industry which
has enormous growth, if better controlled by market regulators with their strict regulations, the
resources can be better allocated in an emerging market economy

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 10. REFERENCES

Rathnamani, V. (2013), “Investor's Preferences towards Mutual Fund Industry in Trichy”

Rajasekar, D. D. (2013), “A Study on Investor's Preference Towards Mutual funds with

Reference to Reliance Private Limited. Chennai- An Empirical Analysis”

Mane, P. (2016) “A Study of Investors Perception towards Mutual funds in the city of
Aurangabad”

Singh, B., & Jha, A. (2009), “An empirical study on awareness and acceptabiltiy of mutual
fund”

Agarwal, D. (1992), “Measuring performance of Indian mutual funds”

Kumar, M., & Gonzaga, R., (2014), “Indian mutual fund industry” Sharma,

N., (2012), “Indian Investor’s perception towards mutual funds”

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