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DISSERTATION PROJECT REPORT

ON

STUDY OF AWARENESS OF INVESTORS IN MUTUAL FUNDS & FACTORS

AFFECTING CHOICE OF MUTUAL FUND COMPANIES

SUBMITTED TOWARDS PARTIAL FULFILLMENT OF POST GRADUATE

DIPLOMA IN BUSINESS MANAGEMENT

APPROVED BY AICTE, GOVT OF INDIA

EQUIVALENT TO MBA

ACADEMIC SESSION

2008-2010

SUBMITTED TO: SUBMITTED BY:

Dr. Vidya Sekhri ANKITA RAJVANSHI

Chairperson Finance, (BM08023)

Controller of Examination

INSTITUTE OF MANAGEMENT STUDIES

LAL QUAN, GHAZIABAD


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CERTIFICATE

This is to certify that Ms.Ankita Rajvanshi, a student of Post Graduate Diploma in Business

Management from Institute Of Management Studies, Ghaziabad has completed her Dissertation

project titled, STUDY OF AWARENESS OF INVESTORS IN MUTUAL FUNDS &

FACTORS AFFECTING CHOICE OF MUTUAL FUND COMPANIES

I wish her all the best in her future endeavors.

Dr.Vidya Sekhri


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Declaration

I hereby declare that this report on STUDY OF AWARENESS OF INVESTORS IN

MUTUAL FUNDS & FACTORS AFFECTING CHOICE OF MUTUAL FUND

COMPANIES has been written and prepared by me during the academic year 2009-20010. This

project was done under the able guidance and supervision of Dr.Vidya Sekhri, Faculty, IMS

Ghaziabad and Mr. ZUNED AHMED, SBI Mutual Fund Management Pvt.Ltd Gurgaon in

partial fulfillment of the requirement for the Post Graduate diploma in Business Management

course of IMS Ghaziabad.

I also declare that this project is the result of my own effort and has not been submitted to anyother institution for the award of any Degree or Diploma.

Ankita Rajvanshi

BM-08023


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ACKNOWLEDGEMENT

A project is likely a fruit grown out of hard labour and meticulous guidance. Any work of this

magnitude requires input, efforts and encouragement of people from all sides. It was the

opportunity to work upon the project like this, which gave me the opportunity of mutual fund

industry interface.

I am grateful to SBI Funds Management Pvt.Ltd, which took me as a part of the organization,

and the necessary information required to proceed with my project. The company provided an

opportunity to understand the subject and see what the benefits my mutual funds are in todays

time. I would like to express special thanks to the branch head of SBI mutual funds, for giving

me this opportunity to work with the organization and to get a hands on experience about the

company. I would like to express my gratitude to my industry mentor Mr.ZUNED AHMED for

this continued and invaluable time and guidance provided to me without which it would have

been difficult to complete the project.

I would like to extend my thanks to my faculty guide Dr.Vidya Sekhri for their constant

guidance and suggestions, which again were very important as they formed the foundation for

the project undertaken. I would also like to thank all the employees at SBI mutual fund,

GURGAON branch that made me comfortable during my tenure in the bank and also help me

learn other functions of the bank.

Last but not the least I express my sincere tanks to those who directly or indirectly help in this

endeavor.


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TABLE OF CONTENTS

S.NO. TOPICS PAGE NO

1 ABSTRACT

2 LITERATURE REVIEW

3 INTRODUCTION OF THE PROJECT

A) About the study

B) About the organization

4 RESEARCH METHODOLOGY

5 FRAMEWORK OF ANALYSIS

6 FINDINGS

7 RECOMMENDATIONS & CONCLUSION

8 APPENDIX

9 LIMITATIONS

10 ANNEXURE

11 BIBLIOGRAPHY


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LIST OF TABLES/GRAPHS

S.NO. TOPIC PAGE NO

3.1 Understanding Mutual Funds

3.2 The Structure of a Mutual Fund Company

3.3 Types of Mutual Funds

3.5 Organization Set up of Mutual Fund

4.1 As Per Gender

4.2 As Per Age

4.3 As Per Academic Qualification

4.4 As Per Occupation

4.5 As Per Annual Income

4.6 As Per Annual Savings

4.7 As Per Investment Span

4.8 Who has influence on investors decision to invest in anymutual fund

6.1 Factor Analysis

8.1 Profile of participants by demographic factors

8.2 Objectives of savings among respondents

8.3 Savings Avenue Preference among respondents

8.4 Scheme preference among Mutual Fund Investors

8.5 Mutual Fund Investment objective among Present Investors

8.6 Preferable Route to Mutual Fund Investing

8.7 Preferred time horizon for investment

8.8 Fund sponsor qualities

8.9 What the investor consider first-the features of aproduct/scheme matching his investment requirement orMutual Fund itself


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1.ABSTRACT

The Indian capital market has been increasing tremendously during last few years. With the

reforms of economy, reforms of industrial policy, reforms of public sector and reforms of

financial sector, the economy has been opened up and many developments have been taking

place in the Indian money market and capital market. In order to help the small investors,

mutual fund industry has come to occupy an important place. While conventional academic

finance emphasizes theories such as modern portfolio theory and the efficient market

hypothesis, the emerging field of behavioral finance investigates the psychological and

sociological issues that impact the decision-making process. Mutual Fund is a retail product

designed to target small investors, salaried people and others who are intimidated by the

mysteries of stock market but, nevertheless, like to reap the benefits of stock market investing.


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2.LITERATURE REVIEW:

A well developed infrastructure has been promoted to cater the needs of growing saving and

expanding capital market of India. Of late, mutual funds have become a hot favorite of millions

of people all over the world. The driving force of mutual funds is the safety of the principal

guaranteed, plus the added advantage of capital appreciation together with the income earned in

the form of interest or dividend. Thus mutual funds act as a gateway to enter into big companies

hitherto inaccessible to an ordinary investor with his small investment. A mutual fund collects

the savings from small investors, invest them in Government and other corporate securities and

earn income through interest and dividends, besides capital gains. Fund/scheme selection by

investors is based on past performance of the funds and money flows into winning funds more

rapidly they flow out of losing funds. (Ippolito (1992) Fund Selection/PDF/2001/rajeshwari).

There is evidence that investor psychology affects fund/scheme selection and switching.

(Goetzman (1997) Stock Market Psychology/041.i)

While investigating the possible psychological basis for investor behaviour, argue that mean

reversion in stock prices is an evidence of investor over reaction where investors overemphasize

recent firm performance in forming future expectations.

In India, one of the earliest attempts was made by NCAER in 1964 when a survey

of households was undertaken to understand the attitude towards and

motivation for saving of individuals. Another NCAER study in 1996 analysed the

structure of the capital market and presented the views and attitudes of

individual shareholders. SEBI NCAER Survey (2000) was carried out to

estimate the number of households and the population of individual investors,

their economic and demographic profile, portfolio size, investment preference for

equity as well as other savings instruments. This is a unique and comprehensive

study of Indian Investors, for, data was collected from 3,00,0000 geographically

dispersed rural and urban households. Some of the relevant findings of the

studies are: Households preferences for instruments match their risk perception;

Bank Deposit has an appeal across all income class; 43% of the non-investor

households equivalent to around 60 million households (estimated) apparently

lack awareness about stock markets; and, compared with low income groups, the

higher income groups have higher share of investments in Mutual Funds (MFs)


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signifying that MFs have still not become truly the investment vehicle for small

investors. Nevertheless, the study predicts that in the next two years (i.e., 2000

hence) the investment of households in MFs is likely to increase. We have to wait

and watch the investors reaction to the July 2nd 2001, great fall of the Big Brother,

UTI. (De Bondt and Thaler (1985) The Journal of Finance. Vol. 40). INVESTORS

PERCEPTION To examine the investors perception, a sample of 300 investors of Jalandhar

investing in mutual fund was selected. 34 per cent of the target population included business

class, 50 per cent service class and the remaining 16 per cent were professionals who have

invested in mutual funds. (Mutual Fund Industry in India: Investor's Perception by DR

GURSHARAN SINGH KAINTH)

Conducted a study to assess the awareness of MFs among investors, to identify the information

sources influencing the buying decision and the factors influencing the choice of a particular

fund. The study reveals among other things that Income Schemes and Open Ended Schemes

are more preferred than Growth Schemes and Close Ended Schemes during the then prevalent

market conditions. Investors look for safety of Principal, Liquidity and Capital appreciation in

the order of importance; Newspapers and Magazines are the first source of information through

which investors get to know about MFs/Schemes and investor service is a major

differentiating factor in the selection of Mutual Fund Schemes. (Madhusudhan V Jambodekar

(1996) ).When another survey has been done certain strategies has been implied to know the

investors perception,a survey of 201 individual investors to study the information sourcing by

investors, their perceptions of various investment strategy dimensions and the factors

motivating share investment decisions, and reports that among the various factors,

psychological and sociological factors dominated the economic factors in share investment

decisions.(Shanmugham (2000) The Hindu Business Line: Economic Survey).

Coming to next survey it has been examined the behaviour of the people who are salaried and

self employed this tells proportion of both the segment It was a survey with an objective to

understand the behavioural aspects of the investors of the North Eastern region towards equity

and mutual funds investment portfolio. The survey revealed that the salaried and self-employed

formed the major investors in mutual fund primarily due to tax concessions. UTI and SBI

schemes were popular in that part of the country then and other funds had not proved to be a

big hit during the time when survey was done.(Sujit Sikidar and Amrit Pal Singh (1996))

survey to know insight into the mutual fund operations of private institutions with special

reference to Kothari Pioneer. The survey revealed that awareness about Mutual Fund concept


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was poor during that time in small cities like Visakhapatnam. Agents play a vital role in

spreading the Mutual Fund culture; open-end schemes were much preferred then; age and

income are the two important determinants in the selection of the fund/scheme; brand image

and return are the prime considerations while investing in any Mutual Fund. (Syama Sunder

(1998))

The importance of brand effect in determining the competitive position of the AMCs. Their

study reveals that brand image factor, though cannot be easily captured by computable

performance measures, influences the investors perception and hence his

fund/scheme slection.(Anjan Chakarabarti and Harsh Rungta)


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3.INTRODUCTION OF THE PROJECT

During the 1990s, a new field known as behavioral finance began to emerge in many academic

journals, business publications, and even local newspapers. The foundations of behavioral

finance, however, can be traced over 150 years. The uniqueness of behavioral finance is its

integration and foundation of many different schools of thought and field. Scholars, theorists,

and practitioners of behavioral finance have backgrounds from a wide range of disciplines .The

foundation of behavioral finance have backgrounds from a wide range of disciplines. From the

liberal arts perspective, this includes the fields of psychology, sociology, anthropology,

economics and behavioral economics, finance and specifically the financial investment study.

On the business administration side. This covers areas such as management, marketing, finance,

technology and accounting. This study will provide a general overview of the area of behavioral

finance along with some major themes and concepts. In addititon, this report will make a

preliminary attempt to understand the primary development of the concept of Mutual fund in

India & will assist investors to develop their own tools (trading strategy and investment

philosophy) by using the concepts of behavioral finance.

One such financial intermediary who has plays a significant role in the development role in the

development and growth of capital markets in Mutual fund (MF). The concept of MFs has

been on the financial land scape for long in primitive form.

Risk adverse investors are interested in schemes with tolerable capital risk and return over bank

deposit, which has restricted the launching of more risky production the Indian Capital market.

But this objective of the MF industry has changed over the professional money management. In

the last 15 years MF is not merely to park investors savings but schemes are tailor made to

cater to investors needs, whatever their age, financial position, risk tolerance and return

expectations. This issue of combining service and product will be an important one for the next

decade. 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

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 little 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,


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invest funds and monitor progress at 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 behavior and understand their needs and expectations, to

gear up the performance to meet investor requirements.

The beliefs and actions of many investors are influenced by the dissonance effect and

endowment effect. The tendency to adjust beliefs to justify past actions is a psychological

phenomenon termed by Festinger (1957) as Cognitive Dissonance.

We find ample proof for the wide prevalence of such a psychological state among mutual fund

investors in India. For instance, UTI had a glorious past and always been perceived as a safe,

high yield investment vehicle with the added tax benefit. Many UTI account holders had

justified their beliefs by staying invested in UTI schemes even after the 1999 bail out and many

have still not lost faith in UTI, even after the July 2001 episode. Endowment Effect is

explained by Thaler Kahneman and Knetsch (1992) as People are more likely to believe that

something they own is better then something they do not own. We have evidence for the

influence of this effect also among Indian MF investors, for, how else can we explain the reason

for the existence of many poor performing funds without investors staying invested with them?

However, in the financial literature, there are no models, which explain the influence of theseperceptions and beliefs on Expectations and Decision Making. Because of our own

inability to understand the sources of motivations and the basis of these expectations we tend to

ignore it. No doubt, reality is so complex that trying to fit an individual investors beliefs into a

model is impossible. But, to a certain extent, we can borrow concepts from social psychology

where behavioral patterns, rational or irrational, are developed and empirically tested. On the

same lines, we can develop certain models to test the financial behaviour, to the extent of the

availability of the explanatory variables.


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A)About the study

Behavioral Finance

Definition:-

Behavioural finance is the study of the influence of psychology on the behaviour of financial

practitioners and the subsequent effect on markets. Sewell (2005)

"I think of behavioral finance as simply "open-minded finance"." Thaler (1993)

'This area of enquiry is sometimes referred to as "behavioral finance," but we call it "behavioral

economics." Behavioral economics combines the twin disciplines of psychology and economics

to explain why and how people make seemingly irrational or illogical decisions when they

spend, invest, save, and borrow money.' Belsky and Gilovich (1999)

"This paper examines the case for major changes in the behavioral assumptions underlying

economic models, based on apparent anomalies in financial economics. Arguments for such

changes based on claims of "excess volatility" in stock prices appear flawed for two main

reasons: there are serious questions whether the phenomenon exists in the first place and, even

if it did exist, whether radical change in behavioral assumptions is the best avenue for current

research. The paper also examines other apparent anomalies and suggests conditions under

which such behavioral changes are more or less likely to be adopted."

Kleidon (1986)

"For most economists it is an article of faith that financial markets reach rational aggregate

outcomes, despite the irrational behavior of some participants, since sophisticated players

stande ready to capitalize on the mistakes of the naive. (This process, which we came poaching,

includes but is not limited to arbitrage.) Yet financial markets have been subject to speculative

fads, from Dutch tulip mania to junk bonds, and to occasional dramatic losses in value, such as

occurred in October 1987, that are hard to interpret as rational. Descriptive decision theory,

especially psychology (see D. Kahneman et al., 1982), can help to explain such aberrant macro

phenomena. Here we propose some behavioral explanations of overall market outcomes

specifically of financial flows that are of considerable practical consequence to both

policymakers and finance practitioners. Patel, Zeckhauser and Hendricks (1991)"Because psychology systematically explores human judgment, behavior, and well-being, it can


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teach us important facts about how humans differ from traditional economic assumptions. In

this essay I discuss a selection of psychological findings relevant to economics. Standard

economics assumes that each person has stable, well-defined preferences, and that she rationally

maximizes those preferences. Section 2 considers what psychological research teaches us about

the true form of preferences, allowing us to make economics more realistic within the rational

choice framework. Section 3 reviews research on biases in judgment under uncertainty; because

those biases lead people to make systematic errors in their attempts to maximize their

preferences, this research poses a more radical challenge to the economics model. The array of

psychological findings reviewed in Section 4 points to an even more radical critique of the

economics model: Even if we are willing to modify our familiar assumptions about preferences,

or allow that people make systematic errors in their attempts to maximize those preferences, it

is sometimes misleading to conceptualize people as attempting to maximize well-defined,

coherent, or stable preferences."

Rabin (1996)

"Market efficiency survives the challenge from the literature on long-term return anomalies.

Consistent with the market efficiency hypothesis that the anomalies are chance results, apparent

overreaction to information is about as common as under reaction, and post-event continuation

of pre-event abnormal returns is about as frequent as post-event reversal. Most important,

consistent with the market efficiency prediction that apparent anomalies can be due to

methodology, most long-term return anomalies tend to disappear with reasonable changes in

technique." Fama (1998)

"Recent literature in empirical finance is surveyed in its relation to underlying behavioral

principles, principles which come primarily from psychology, sociology and anthropology. The

behavioral principles discussed are: prospect theory, regret and cognitive dissonance, anchoring,

mental compartments, overconfidence, over- and under reaction, representativeness heuristic,

the disjunction effect, gambling behavior and speculation, perceived irrelevance of history,

magical thinking, quasimagical thinking, attention anomalies, the availability heuristic, culture

and social contagion, and global culture." Shiller (1998)

"The field of modern financial economics assumes that people behave with extreme rationality,

but they do not. Furthermore, people deviations from rationality are often systematic.

Behavioral finance relaxes the traditional assumptions of financial economics by incorporating

these observable, systematic, and very human departures from rationality into standard models

of financial markets. We highlight two common mistakes investors make: excessive trading and


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the tendency to disproportionately hold on to losing investments while selling winners. We

argue that these systematic biases have their origins in human psychology. The tendency for

human beings to be overconfident causes the first bias in investors, and the human desire to

avoid regret prompts the second. Barber and Odean (1999)

"Behavioral Economics is the combination of psychology and economics that investigates what

happens in markets in which some of the agents display human limitations and complications.

We begin with a preliminary question about relevance. Does some combination of market

forces, learning and evolution render these human qualities irrelevant? No. Because of limits of

arbitrage less than perfect agents survive and influence market outcomes. We then discuss three

important ways in which humans deviate from the standard economic model. Bounded

rationality reflects the limited cognitive abilities that constrain human problem solving.

Bounded willpower captures the fact that people sometimes make choices that are not in their

long-run interest. Bounded self-interest incorporates the comforting fact that humans are often

willing to sacrifice their own interests to help others. We then illustrate how these concepts can

be applied in two settings: finance and savings. Financial markets have greater arbitrage

opportunities than other markets, so behavioral factors might be thought to be less important

here, but we show that even here the limits of arbitrage create anomalies that the psychology of

decision making helps explain. Since saving for retirement requires both complex calculations

and willpower, behavioral factors are essential elements of any complete descriptive

theory." Mullainathan and Thaler (2000)

"Behavioral finance is a rapidly growing area that deals with the influence of psychology on the

behavior of financial practitioners." Shefrin (2000).

"Behavioral finance is the application of psychology to financial behaviorthe behavior of

practitioners." Shefrin (2000)

"Behavioral finance is the study of how psychology affects financial decision making and

financial markets." Shefrin (2001)

"Behavioral finance argues that some financial phenomena can plausibly be understood using

models in which some agents are not fully rational. The field has two building blocks: limits to

arbitrage, which argues that it can be difficult for rational traders to undo the dislocations

caused by less rational traders; andpsychology, which catalogues the kinds of deviations from

full rationality we might expect to see. We discuss these two topics, and then present a number

of behavioral finance applications: to the aggregate stock market, to the cross-section of average

returns, to individual trading behavior, and to corporate finance. We close by assessing progress


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in the field and speculating about its future course." Barberis and Thaler (2001)

"This essay provides a perspective on the trend towards integrating psychology into economics.

Some topics are discussed, and arguments are provided for why movement towards greater

psychological realism in economics will improve mainstream economics. Rabin (2001)

"The basic paradigm of asset pricing is in vibrant flux. The purely rational approach is being

subsumed by a broader approach based upon the psychology of investors. In this approach,

security expected returns are determined by both risk and misevaluation. This survey sketches a

framework for understanding decision biases, evaluates the a priori arguments and the capital

market evidence bearing on the importance of investor psychology for security prices, and

reviews recent models." Hirshleifer (2001)

"Behavioral finance and behavioral economics are closely related fields which apply

scientific research on human and social cognitive and emotional biases to better understand

economic decisions and how they affect market prices, returns and the allocation of resources.


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MUTUAL FUNDS

3.1Understanding Mutual Funds

A Mutual Fund is a trust that pools the savings of a number of investors who share a common

financial goal. The money thus collected is then invested in capital market instruments such as

shares, debentures and other securities. The income earned through these investments and the

capital appreciation realized both are shared by its unit holders in proportion to the number of

units owned by them.

The above diagram gives a brief idea about how the concept of mutual fund investing works.

The investor after deciding to invest in mutual fund approaches Mutual Fund house (Asset

Management Company) directly or through distributor of mutual Funds. Now as per the scheme

selected by investor, the AMC invests his money in eitherBond or Stocks. Depending upon the

amount invested, investor owns a part of the overall fund. Prices of bonds and stocks keeps on

fluctuating which also simultaneously change the value of investment in mutual fund scheme

resulting in either profit or loss. The beauty of mutual funds is that any one with a surplus of a

few hundered thousand rupees can invest and reap returns as high as those provided by the

equity markets or have a steady and comparatively secure investment as offered by debt

instruments.


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3.2 The Structure of a Mutual Fund Company

(a) Sponsor Sponsor is the person who acting alone or in combination with anotherbody corporate 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


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is not responsible or liable for any loss or shortfall resulting from the operation of the

Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund

(b)Trust The mutual fund is constituted as a trust with the provisions of the IndianTrust Act, 1882 by the sponsor. The trust deed is registered under the Indian Registration

Act, 1908

(c) Trustee 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 ensure that the AMC functions in the interest of investors and in

accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations,

1996, the provisions of the Trust Deed and the Offer Documents of the respective

Schemes. At least 2/3rd directors of the Trustee are independent directors who are not

associated with the Sponsor in any manner.

(d) Asset Management Company the AMC is appointed by Trustee to manage thefunds of the investors. The AMC contains professional managers who make all investing

decisions, and they are answerable to trustees for their investment decisions. The AMC of

mutual fund house must have net worth of at least 10 crores at all the time.

Mutual fund industry today offers plethora of schemes to suit different needs of all type

of investors. Before going for any specific scheme, it is necessary to understand the basic

classification of schemes.

Costs/Expenses related to Mutual Funds

Costs are the biggest problem with mutual funds. These costs eat into the mutual fund return,

and they are the main reason why the majority of funds end up with sub-par performance.

What's even more disturbing is the way the fund industry hides costs through a layer of

financial complexity and jargon. Some critics of the industry say that mutual fund companies

get away with the fees they charge only because the average investor does not understand what

he/she is paying for.

Fees can be broken down into two categories:

1.Ongoing yearly fees to keep you invested in the fund.

2. Transaction fees paid when you buy or sell shares in a fund (loads).


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3.3 Types of Mutual Funds

A mutual fund has several schemes in which investor can invest. There are structure based

schemes distinguished by their maturity periods. Then there are objective based schemes that

offer different risk-reward options. Lastly, there are special schemes that invest in specific

sectors.

Types of Funds

Mutual Funds Schemes by Structure

o Open-Ended Funds: Open-Ended fund scheme is open for subscription all through

year. An investor can buy or sell the units at "NAV" (Net Asset Value) related price at

any time.

o Close-Ended Funds: A Close-Ended fund is open for subscription only during a

specified period, generally at the time of initial public issue. The Close-Ended fund

scheme is listed on the some stock exchanges where an investor can buy or sell the

units of this type of scheme.

o Interval Funds: Interval Funds combines both the features of Open-Ended funds and Close-

Ended funds.


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Mutual Funds Schemes by Investment Objective

o Growth Funds: The objective of Growth Fund scheme is to provide capital appreciation

over the medium to long term. This type of scheme is an ideal scheme for the investors

seeking capital appreciation for a long period.

o Income Funds: The Income Fund schemes objective is to provide regular and steady

income to investors.

o Balanced Funds: The objective of Balanced Fund schemes is to provide both growth and

regular income to investors.

o Money Market Funds: The objective of Money market funds is to provide easy liquidity,

regular income and preservation of income.

o Loan Funds: Loan Funds charge a commission each time when you buy or sell units in the

funds.

o No-Loan Funds :No-Loan Funds does not charge a commission on purchase or sale.

Other Funds

o Tax Saving Schemes: The objective of Tax Saving schemes is to offer tax rebates to the

investors under specific provisions of the Indian Income Tax laws. Investments made under

some schemes are allowed deduction under Section 88 of the Income Tax Act.

o Industry specific Schemes: Industry specific schemes invest only in the industries specified

in the offer document of the schemes.

o Index schemes: Such schemes link with the performance of BSE or NSE

o Sectoral Schemes: The scheme invest particularly in a specified industries or initial public

offering.


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Investment Option

Every scheme offered by mutual fund comes with three investment options

Dividend Option

Growth Option

Dividend Reinvestment Option

Selection of particular option under any scheme depends upon various factors such as

requirement of money, Risk taking ability, Investment horizon, Profile of Investor and also to

some extent type of scheme.

Dividend option

Under this option, the scheme declares and pays dividends to unit holders from time to time.

This option comes with sub options of weekly/monthly/quarterly dividends which are declared

at the end of stated periods. This kind of option is ideally suited for Debt oriented schemes,

and to those investors who has lesser risk taking ability and need returns at constant interval.

Growth option

The gains made are not distributed to unit holders rather money is retained in the scheme.

Therefore the NAV of growth scheme is higher than NAV of scheme under Dividend option.

Investors whose investment horizon is long-term, and have risk taking ability should opt for

this kind of scheme. Scheme with this option attracts capital gains tax of 30 %( assuming

highest income tax bracket) if sold within a year.

Equities scheme should be chosen with this option as equities investment needs time to

generate adequate returns.

Dividend Reinvestment option

The third possible option is dividend reinvestment, where dividend is declared but not

distributed to the investor. The dividend declared is used to buy additional units in the same

scheme. Therefore, the value of each unit in a dividend reinvestment option would be similar

to a comparable unit under the dividend option, but the dividend reinvestment option investor

would have more number of units than a comparable growth option investor.


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Above three options could be understood by table presented below, where initial investment

worth Rs.15000 at NAV of Rs.10 per unit grows by 60% to Rs.24000.

Three Investment Option

Dividend Option Growth Option Dividend

Reinvestment Option

Units NAV(Rs ) Units NAV(Rs ) Units NAV (Rs )

Opening NAV 1500 10.00 1500 10.00 1500 10.00

NAV Before

Dividend Declaration

- 16.00 - 16.00 - 16.00

Dividend Declared - 1.00 - N.A - 1.00

Ex- dividend NAV - 15.00 - 16.00 - 15.00

Dividend Received by

Investor

- 1500.00 - N.A - 0.00

Dividend Reinvested

by Investor

- 0.00 - N.A - 1500.00

Additional Units *- N.A - N.A - -

*Assuming reinvestment at ex- dividend NAV

Investors Net Position

Dividend Option Growth Option DividendReinvestment Option

Units NAV (Rs) Units NAV (Rs) Units NAV (Rs)

Unit Holding 1500 15.00 1500 16.00 1600 15.00

Unit Holding

Value

22,500.00 24,000.00 24,000.00

Add Dividend in

Bank

1,500.00 0.00 0.00

Total 24,000.00 24,000.00 24,000.00


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History of Mutual Fund Industry in India

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at

the initiative of the Government of India and Reserve Bank the. Indian mutual fund industry has

witnessed slow growth in initial years when only government owned organizations were

authorized to issue mutual fund units. However, after opening of mutual fund industry to private

players it has been growing at rapid pace. A brief history of mutual funds in India can be broadly

divided into four distinct phases

First Phase -1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the

Reserve Bank of India and functioned under the Regulatory and administrative control of the

Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development

Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first

scheme launched by UTI was Unit Scheme 1964. It had required a lot of efforts for UTI to get all the

investors invest their money in non-conventional destination such as MF. By the time of

launching of schemes only Rs.25crores had been injected but at the end of 1988 UTI had

Rs.6.700crores of assets under management (AUM).

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

Once when people started investing in MF then that was the golden time for others to look at this as

lucrative option and finally the year 1987 marked the entry of non- UTI Public sector mutual funds

set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance

Corporation of India (QIC). SBI Mutual Fund was the first non-UTI Mutual Fund established in June

1987 followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89),

Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92).

LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December

1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004

crores.


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Third Phase - 1993-03 (Entry of Pvt. Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund

industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in

which the first Mutual Fund Regulations came into being, under which all mutual funds,

except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged

with Franklin Templeton) was the first private sector mutual fund registered in July 1993. This

phase is also remembered for its worst ever response for MF and wrong perception formed by

people that still hurt the growth for industry. This decade witnessed number of scams like of

UTI's US-64 and also in year 1999-00 the crashing of share market collectively all these events

led the industry to a negative growth. Despite that the number of mutual fund houses went on

increasing, with many foreign mutual funds setting up funds in India and also the industry has

witnessed several mergers and acquisitions. As at the end of January 2003, there were 33

mutual funds with total assets of Rs.121805crores. The Unit Trust of India with Rs.44,541

crores of assets under management was way ahead of other mutual funds.

Fourth Phase

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was

bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trustof India with assets under management of Rs.29,835 crores as at the end of January

2003, representing broadly, the assets of US 64 scheme, assured return and certain other

schemes. As at the end of April 2004, there were 30 funds, which manage assets of

Rs.1,54,024 crores under more than 400 schemes.


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3.4 Growth of Mutual fund industry since inception

Benefits of Investing in Mutual Funds

Mutual funds make saving and investing simple, accessible, and affordable. The advantages of

mutual funds include professional management, diversification, variety, liquidity, affordability,

convenience, and ease of recordkeeping-as well as strict government regulation and full disclosure.

Professional Management:Mutual Funds employ the services of experienced and skilled

professionals and dedicated investment research team. The whole team analyses the

performance and balance sheet of companies and selects them to achieve the objectives of the

scheme.

Potential Return: Mutual Funds have the potential to provide a higher return to an investor

than any other option over a reasonable period of time.

Diversification: Mutual Funds invest in a number of companies across a wide cross section of

industries and sectors.


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Liquidity: The investor can get the money promptly at the net asset value related prices

from the Mutual Funds open-ended schemes. In close-ended schemes, the units can be sold on

a stock exchange at the prevailing market price.

Low Cost: Investment in Mutual Funds is a less expensive way in comparison to a directinvestment in capital market, for e.g. management and administration cost.

Transparency: Mutual Funds have to disclose their holdings, investment pattern and the

necessary information before all investors under a regulation framework.

Flexibility: Investment in Mutual Funds offers a lot of flexibility with features of schemes

such as regular investment plan, regular withdrawal plans and dividend reinvestment plans

enabling systematic investment or withdrawal of funds.

Affordability: Small investors with low investment fund are unable to high-grade or bluechip stocks. An investor through Mutual Funds can be benefited from a portfolio including

of high priced stock.

Well regulated: All Mutual Funds are registered with SEBI, and SEBI acts a watchdog,

so the Mutual Funds are well regulated.

Risk Tolerance/

Return expected

Focus Suitable Products Benefits offered by

MFs

Low Debt Bank, Company FD,Debt based Fund

Liquidity, BetterPost-Tax returns

Medium Partially Debt,Partially Equity

Balanced Funds,some DiversifiedEquity Funds, someDebt Funds, mix ofshares and FD

Liquidity, BetterPost-Tax returns,Better Managementdiversification

High Equity Capital Market,

Equity Funds(diversified as wellas sectoral)

Diversification,

expertise in Stockpicking, Liquidity,Tax free dividends

*Source: www.mutualfunds.about.com


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DRAWBACKS OF INVESTING IN MUTUAL FUND

No control over cost

An investor in mutual fund has no control over cost of investing. He pays investment manager

fee as he remains with the fund .Fee is usually charged as percentage of the value of his

investment whether the fund value is rising or declining. The investor also has to pay

distribution costs which he would not incur indirect investment.

No tailor made portfolio

The investors who invest in mutual funds cannot build their own portfolio of securities andbonds. Unit holders have to be depend on the decision taken by fund managers. High net worth

individual may find it constraint in achieving their objectives.

Managing a portfolio of funds

Mutual Funds now a days offer various schemes as such investor get confused with too many

choice available and he further requires advice to choose best scheme from the available choice.

Price Uncertainity

Mutual Funds declare the unit prices or NAV a few hours after the close of market so real time

information regarding the prices is not available, as in case of shares.

Risks and costs

Volatile market may create fluctuations in the value of mutual fund investment. Fees/expenses

related with investing in mutual fund do not actually occur when buying securiities.

No Guarantees

The investment in mutual fund could fall and be less than the principal invested. Returns are

not guaranteed or insured by the government. Despite of professional management

outperforming results may not be guaranteed.


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Diversification

Diversification, though it reduces risk, simultaneously it also limits the possible growth of a

concentrated investment. Also, diversification does reduce the exposure to market risk. The

investor has to weigh the nature of the advantages and the disadvantages and allocate the

amount of money to mutual funds that he/she does not want to manage directly as a good fund

manager can create substantial wealth over a period of time. The advisors job comes in

understanding how much wealth to allocate to mutual funds, what kind of mutual funds etc.

depending on the investors objectives and the risk profile. For example, if the investors want

high returns and are not so worried about the stock market movement in the short term, the

advisor can select some of the best stock based mutual funds.


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B)About the Oraganization

State Bank Of IndiaThe origin of the State Bank of India goes back to the first decade of the nineteenth century

with the establishment of the Bank of Calcutta in Calcutta on 2 June 1806

Emergence of Imperial Bank

The presidency Banks of Bengal, Bombay and Madras with their 70 Branches were merged in

1921 to form the Imperial Bank of India.

SBI has three types of subsidiaries

1. Banking subsidiaries

2. Non-Banking subsidiaries

3. Foreign subsdiaries

Import Board of Directors:( Note: Mentioned only top 5)

Central board of State bank of India (As on 12th July 2007)

1. Shri O.P. Bhatt (Chairman)

2. Shri T.S. Bhattacharya (MD & GE)

3. Shri Ajay G.Piramal

4. Shri Suman Kumar Bery

5. Dr.Ashok Jhunjhunwala

SBI MUTUAL FUND

SBI Mutual Fund (SBI Funds Management Pvt.Ltd.) is Indias largest bank

sponsored mutual fund and has an enviable track record in judicious investments and

consistent wealth creation since its inception in June 1987.

The Fund traces its lineage to SBI-Indias largest banking enterprise. The institution

has grown immensely since its inception and today it is Indias largest bank,

patronized by over 80% if the top corporate houses of the country. SBI Mutual Fund


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is a Joint Venture between the State Bank OfIndia and Society General Asset

Management, one of the worlds leading fund management companies that

manages over US $ 330 Billion worldwide.

In 20 years of operation, the fund has launched 38 schemes and successfully

redeemed 15 of them. In the process, it has rewarded its investors handsomely with

consistently high returns. A total number of over 5.4 million investors have reposed

their faith in the wealth generation expertise of the SBI Mutual funds. Some of

schemes of SBI Mutual Funds have consistently out performed over the benchmark

indices and have emerged as the preferred investment venture for millions of

investors.The strong distribution channel of SBIMF through direct sales, Individual

Financial advisors (IFA) regional distribution Houses, Private banks, PSU Banks,

and SBI Group network help a lot for the awareness of the funds and provide a vast

channel for the business.

Award and Achievements:

The expert and excellent performance is frequently recognized fund industry.

SBI Mutual Fund (SBIMF) has been the proud recipient if the ICRA Online Award

8-times, CNBC TV- 18 Crisil Award 2006-4 Awards, The Lipper Award (Year

2005-2006) and most recently with the CNBC TV-18 Crisil Mutual Fund of the year

Award 2007 and 5 Awards for or schemes.

3.5 ORGANIZATION SET UP OF MUTUAL FUND


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RECENT TRENDS IN MF INDUSTRY

Mutual funds now represent perhaps the most appropriate investment opportunity.

As financial markets become more sophisticated and complex, investors need a

financial intermediary who provides the required knowledge and professionals

expertise on successful investing.

Alone UTI with just one scheme in 1964 now competes with as many as 400 odd

products and 31 players in the market. In spite of the stiff competition and losing

market share, UTI still remains a formidable force to reckon with.

The most important trend in the mutual fund industry is the aggressive expansion of

the foreign owned mutual fund companies and the decline of the companies floated

by nationalized banks and smaller private sector players. Many nationalized banks

got in to the mutual fund business in the early nineties and got off to a good start due

to the mutual fund business in the early nineties and got off to a good start due to the

stock market boom prevailing then. Because of poor understanding of the business,

performance of most of the schemes floated by these funds was not good. Some

schemes had offered guaranteed returns and their parent organizations had to bail out

these AMCs by paying large amounts of money as the difference between theguaranteed and actual returns.

The experience of some of the AMCs floated by private sector Indian companies

was also very similar. They quickly realized that the AMC business is a business,

which makes money in the long-term and requires deep-pocketed support in the

intermediate years. Some have sold out to foreign owned companies, some have

merged with others and there is general restructuring going on. The foreign owned

companies have deep pockets and have come in here with the expectation of a long

haul. They can be credited with introducing many new practices such as new product

innovation, sharp improvement in service standards and disclosures, usage of

technology, broker education and support etc. In fact, they have forced the industry

to upgrade itself and service levels of organizations like UTI have improved

dramatically in the last few years in response to the competition provided by these.

The industry is also having a profound impact on financial markets. While UTI has

always been a dominant player on the bourses as well as the debt markets, the new


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generations of private funds, which have gained substantial mass, are now seen

flexing their muscles. Funds have shifted their focus to the recession free sectors like

pharmaceuticals, FMCG and technology sector. Funds performances are improving.

Mutual funds are now also competing with commercial banks in the race for retail

investors savings and corporate float money. The power shift towards mutual funds

has become obvious. The coming few years will show that the traditional saving

avenues are losing out in the current scenario. Many investors are realizing that

investments in saving accounts are as goos as locking up their deposits in a closet.

The fund mobilization trend by mutual funds in the current year indicates that

money is going to mutual funds in a big way.

The Indian mutual fund industry has already started opening up many exciting

investment opportunities to Indian investors. People have started moving their

saving from bank deposit to another investment avenue such as shares, mutual funds

are still a new financial intermediary in India. India is at the first stage of a

revolution that has already peaked in the U.S. In India, mutual fund assets are not

event 10% of the bank deposits. The U.S. boasts of an asset base that is much higher

than its bank deposits. Changing trend has forced a large number of banks to adopt

the concept of narrow banking wherein the deposits are kept in Gilts and some otherassets, which improves liquidity and reduces risk. The basic fact lies that banks

cannot be ignored and they will not close down completely. Their role as

intermediaries cannot be ignored. It is just that Mutual Funds are going to change the

way banks do business in the future.


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4.RESEARCH METHODOLOGY:

Research Design: It will be exploratory in nature.

Sampling Unit: Individual investors who are investing in Mutual Funds. Sampling Size: 1000 Respondents.

Sampling area: Gurgaon

Sources Of Data: The primary data collection will be done by survey method. Survey

will be conducted using Questionnaire method. Schedule method may also be used in case

of investors preference in providing the desired information.

4.1)AS PER DEMOGRAPHIC PROFILE

Out of 1000 respondents,700 Respondents are male. This shows that mostly males invest in

mutual funds rather in mutual funds rather than males.


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4.2) AGE:

As the chart shows, most of the investors are of age span of 31-40 years.This shows that most of

the employed prefer to invest in mutual funds.After this group, the 2nd most investing group is

of age span below 30 years.

4.3)ACADEMIC QUALIFICATION:

Investors who invest in mutual funds are educated.40% of the population is educated.30% are

post graduate and 18% have professional degree.


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4.4) OCCUPATION:

Above graph shows that out of various occupations, there are most of the salaried people who

invest in mutual funds. Salaried people prefer to invest in mutual funds because they get various

benefits like professional management of their funds, good return and tax benefits.

After salaried people, professionals invest more in the mutual funds.

4.5) ANNUAL INCOME:

Most of the investors have annual income between Rs.1,00001-3,00,000 out of which 84

investors are salaried people.Then the 2nd major group which invests in mutual funds is of

income group between Rs 3,00,001-5,00,000.


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4.6) ANNUAL SAVINGS:

Most of the investors (42%) save annually less than Rs.50,000.These people include people

who have income between Rs.1,00,001-3,00,000

OBJECTIVES OF SAVINGS AMONG RESPONDENTS:

OBJECTIVE WMV RANK

To provide for retirement 2.96 III

For tax reduction 3.36 I

To meet contingencies 2.84 IV

For childrens education 3.02 II

For purchase of assets 2.8 V

The above table shows that the major objective of saving is tax reduction .As our sample

includes mostly the salaried people, so they prefer investing in mutual funds to reduce their

tax.After this the second main objective of savings is to save for childrens education.


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4.7) INVESTMENT SPAN:

This finding is related to investors duration of investments means,how long the investors

generally prefer to go with investments.In the response of this question,54% of the total

population intends to go for duration of 1-3 years.28% go for less than a year investment

duration i.e. they park their surplus for short term to generate benefit out of the idle cash and

rest of the total population 18% go for more than 3 years.this result also shows that our

investors go for medium term investment.

4.8) WHO HAS INFLUENCE ON INVESTORS DECISION TO INVEST IN ANY MUTUAL

FUND


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This analysis the way investors manage their investments.They were asked to make a choice out

of the three options i.e. Self managed,Peer group,financial advisors.

The 1st option for anwer is the mutual fund agent/broker/financial planner.The 2nd option is

related to the self knowledge analysis.The 3rd option is related to the friend response with the

similar good experience.67% resondents of the total populations have given their choice for

option no.1 & 3.They have accepted that they follow the popularity of the fund before going for

the investment.33% respondents have shown their strong analytical skills for preparations of

their investments, as they are supposed to show.The respondents are from educated strata so this

result shows that they analyze the investment options by their own as they are capable to do

so.It is a good sign for Indias growth in investment field.


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5.FRAMEWORK OF ANALYSIS

To understand the savings avenue preference, scheme preference and objectives forinvestment in MFs, and to identify the information sources influencing scheme

selection, and the preferred mode of communication, the respondents were asked to

rank their preferences on a ranking scale.The ranks were ascertained by obtaining

the weighted mean value of the responses.To identify the factors that influence the

investors fund/scheme selection, 6 variables were influenced prior to the

construction of the questionnaire.

6 identified variables classified under fund sponsor qualities are as follows:

1.Sponsor has a recognized brand name.

2. Sponsor has a well developed research and infrastructure.

3.Sponsors past performance in terms of risk and return.

4. Transparency in all aspects of dealings/charges at the time of investment.

5. Mutual funds investors grievence redressal machinery.

6.Fringe benefits i.e. free insurance,credit cards,loans of collateral,tax benefits etc.

In the survey , the respondents were asked to rate the importance of the 6 specified

variables on a 5 point scale ranging from highly Important (5) to not at all Important

(1).The data was factor analyzed using Principal Component Analysis, with the

objective of identifying the factor which turns out to be significant in the

fund/scheme selection.


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6. FINDINGS

The survey reveals that the most preferred vehicle in Bank Deposits,with MFs

ranking 4th in the order among 8 choices. Growth schemes are ranked first,followed

by Income Schemes and Balanced Schemes.The investors look for safety first in MF

products,followed by good returns,Tax Benefits,liquidity and capital

appreciation.The survey further reveals that the scheme selection decision is made

by respondents on their own,and the other sources.The findings regardings the

influential fund selection facors are:

Influence of Fund Sponsor Qualities on the Selection of Mutual Funds:

The 6 fund related variables were analyzed for their importance.The analysis reveals

that the investor considers all the 6 variables as important in his selection of the

fund/scheme.the weighted mean is given in Table 1.

Table-6.1

Importance of fund sponsor qualities in fund/scheme selection

S.NO. Variable Weighted Mean Value

1 Sponsor has a recognized brand name 4.146667

2 Sponsor has a well developed research &

infrastructure

4.206667

3 Sponsors past performance in terms of risk

and return

4.353333

4 Transparency in all aspects of dealings/charges

at the time of investment.

4.653333

5 Mutual Funds investors grievance redressal

machinery

4.326667

6 Fringe benefits i.e. free insurance, credit

cards,loans of collateral,tax benefits etc

3.6


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Hence, to indentify the investors underlying fund/scheme selection criteria, so as to group them

into specific market segment to enable the designing of the appropiate marketing

strategy,Factor analuysis was done using Principal Component Analysis.

Bartletts test of sphericity and Kaiser-Meyer Olkin (KMO) measyre of sampling adequacy

were used to examine the appropiateness of factor analysis.The approximate chi-square stastic

is 195.820 with 15 degrees of freedom which is significant at 0.00 level.The KMO stastic

(0.600) is also large (>0.5).Hence factor analysis is considered as an appropriate technique for

further analysis of data.

Results of Principal Component Analysis for variables are tabulated in Table 2.

Results of Principal Component Analysis

KMO and Bartletts Test

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .600

Approx. Chi-Square 195.820

df 15

Bartlett's Test of Sphericity

Sig. .000

Communalities

Initial Extraction

VAR00001 1.000 .757

VAR00001 1.000 .662

VAR00001 1.000 .792

VAR00001 1.000 .252

VAR00001 1.000 .542

VAR00001 1.000 .584


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Initial Eigen Values

Component Total % of variance Cumulative %

1 2.364 39.397 39.397

2 1.225 20.417 59.813

3 .951 15.844 75.657

4 .721 12.012 87.669

5 .439 7.323 94.992

6 .300 5.008 100.00

Extraction Sums of squared loadings Rotation Sums of squared Loadings

Factor Eigen Value % of variance Cumulative% Eigen Value % of Variance Cumulative%

1 2.364 39.397 39.397 2.007 33.451 33.451

2 1.225 20.417 59.813 1.582 26.363 59.813


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Factor Matrix Rotated Factor Matrix

Variable Factor 1 Factor 2 Factor 1 Factor 2

1 .560 666 .091 .865

2 .540 .609 .106 .807

3 .873 -.170 .819 .348

4 .499 -.053 .443 .235

5 .569 -.466 .733 -.068

6 . 651 -.402 .764 .031

Retaining only the variable with eigen values greater than one (Kaisers croterion), we can infer that

39.397% of variance is explained by factor 1 and 20.4717% of variance is explained by factor 2 and

together,both factors contributed to 59.814% of variance.

Factor loadings are very high in case of factor 1 (5 out of 6 variables have factor loadings>0.5).It shows

that all variables are clubbed into one factor.But on the basis of theory,we can infer that there must be

more than one factor.Therefore, Varimax Rotation was done to obtain factors that can be named and

interpreted.

On the basis of Varimax Rotation with Kaiser normalization, 2 factors have emerged.Each factor is

constituted of all those variables that have factor loadings greater than or equal to 0.5.Thus variable 3,5

and 6 constituted the second factor and this was conceptualized as Brand and R&D.

Thus,after rotation,factor1 (Fringe benefits) account for 33.451% of the variance and factor 2 (Portfolio

Management) accounts for 26.363%of variance and both factors together explain for 59.814% of

variance.The identified factors with the associated variable and factor loadings are given in Table 3.


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Identification of fund sponsor related factors in fund/scheme selection

Factor Name Variables Factor Loadings

Performance 3 Past performance in terms of risk and return .819

5 Investors grievance redressal machinery .733

6 Fringe benefits .764

Brand And 1 Recognized brand name .865

R & D 2 Well developed research & infrastructure .807


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7.RECOMMENDATIONS&CONCLUSION

While analyzing the mutual funds I have come to find some interesting results. Firstly, that ifyou have some or little knowledge about stock market then you should take the route of MutualFunds for the investment in stocks. Depending upon your choice and needs you can easily find

out the schemes for your taste.

But as we have seen that in case of stocks there are lot of fluctuations in respect of return andthe amount of risk associated with the stocks is much higher that the mutual funds. Instead ofstocks he can go for equity schemes.

There are numerous equity schemes to invest in. If the investor is conservative and bothersabout the risks of the equity instruments then he can opt the way of debt funds.

1) The survey reveals that the investors are basically influenced by the image and reputationfollowed by efficient fund management in their selection of fund schemes. Continuous

product development and introduction of innovative products, is a must to attract and retain

this market segment. Some suggestions are:

a) Since insurance business has now become open, MFs can design products combininginsurance and investment benefits to cater to the investor needs of safety and returnsrespectively. This will surely attract/retain low and moderate risk profile investors whooften resist their desire to play directly in the capital market

b) Retirement time returns are every important reason of investing and hence people areready to take a bit more risk if they are promised the same. Retirement schemes willattract the middle-income group, which seeks regular income after retirement. A largechunk of retail investors will turn to this product on governments approval, for their

financial needs of safety, return, and liquidity are reasonably met by this product.

2) It is further revealed that the investors are influenced by the reputation enjoyed by thereputation enjoyed by the sponsor, in their selection of the schemes. Establishing a brandname and building up reputation and carefully main taining the reputation will attract onsegment of investors.

3) Further, investors are influenced by the extent and quality of disclosure of informationsubsequent to their investment regarding disclosure of NAV, portfolio of investment anddisclosure of deviation of investment from the stated objective and the attached fringe

benefits to the scheme in their selection of the scheme. Hence, AMCs should take steps to

be as transparent as possible and follow the disclosure norms spelt out by SEBI and AMFIin this connection.

4) Lack of new investors is another big problem. Usually the funds invested keeps rotating indifferent schemes. Fresh college pass outs who are about to step into the professional arenaare a great potential to be tapped.

5) Many respondents could not differentiate between mutual funds and shares, they find thetechnicalities to be very confusing and hence remain away.

So there is a need to make the investors aware about the benefits of investing in Mutual Fundsand their attractiveness as compared to other financial instruments so that the savings could be

properly routed, invested and wealth generation could be attained. So there is a need to makethe investors aware to increase the acceptance of mutual funds.


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Running a successful MF requires complete understanding of the pecularities of theIndian stock market and also the psyche of the smaller investor.This study has made anattempt to understand the financial behavior of MF investors in connection with thescheme preference and selection.Behavioral trends usually take time to stabilize andthey get disturbed even by a slight change in any of the influencing variables.It is hoped

that the survey findings will have some useful managerial implication for the AMCs intheir product designing.


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8.APPENDIX

TABLES

TABLES 8.1

Profile of participants by demographic factors

Profile particulars Number of Respondents Percentage

(Total=1000)

Sex

Male 700 70

Female 300 30

Age

Below 30 320 32

31-40 380 38

41-50 200 20

Above 50 100 10

Academic qualification

High School 0 0

10+2 120 12

Graduate 400 40

Post Graduate 300 30

Professional Degree 180 18

Marital Status

Married 700 70

Unmarried 300 30

Occupation

Professional 120 12

Salaried 800 80

Business 80 8


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Annual Income (in Rs.)

1,00,001-3,00,000 640 64

3,00,001-5,00,000 340 34

5,00,001-10,00,000 20 2

Above Rs.10,00,000 0 0

Annual Savings (in Rs.)

Less than 50,000 420 42

50,001-100,000 380 38

1,00,001-2,00,000 140 14

2,00,001-5,00,000 60 6

Above Rs.5,00,000 0 0

TABLE-8.2

Objectives of savings among respondents

Objective WMV Rank

To provide for retirement 2.96 III

For tax reduction 3.36 I

To meet contingencies 2.84 IV

For childrens education 3.02 II

For purchase of assets 2.8 V


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TABLE-8.3

Savings Avenue Preference among respondents

Savings Avenue WMV Rank

Currency 2.78 VII

Bank Deposit 6.19 I

Life Insurance 5.55 III

Pension and Provident Fund 5.58 II

Shares 4.14 VI

Units of UTI & Mutual Funds 5.13 IV

Postal Savings 4.40 V

Chit Funds 2.24 VIII

Real Estate 2.09 X

Gold 2.15 IX

TABLE-8.4

Scheme preference among Mutual Fund Investors

Scheme WMV

Growth schemes 2.16 I

Income schemes 2.07 II

Balanced schemes 1.76 III

Index scheme 1.50 V

Money market scheme 1.42 VITax saving scheme 1.65 IV

International diversification 1.37 VII


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TABLE-8.5

Mutual Fund Investment objective among Present Investors

Objectives WMV Rank

Safety 3.43 I

Liquidity 2.74 IV

Flexibity 2.07 VIII

Good Rreturn 3.31 II

Capital Appreciation 2.37 V

Professional Management 2.24 VI

Tax Benefit 3.15 III

Diversification Benefit 2.16 VII

TABLE-8.6

Preferable Route to Mutual Fund Investing

Route Respondents Perce

(Total=1000) (%)

Mutual Fund agent/broker/Financial planner 370 37

A friend with similar good experience 300 30

Self Knowledge Analysis 330 33


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TABLE-8.7

Preferred time horizon for investment

Time Horizon Number of Respondents Percentage

(Total=1000) (%)

Short term horizon 280 28

Medium term horizon 540 54

Long term horizon 180 18

TABLE-8.8

Fund sponsor qualities

a) sponsor has a recognized brand name

Scale Respondents Perce

(Total=1000) (%)

Highly important 430 43

Important 370 37

Somewhat important 140 14

Not very important 30 3

Not at all important 30 3


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b) Sponsor has a well developed research & infrastructure

Scale Respondents Per

(Total=1000) (%)


Important 410 41




c) Sponsors past performance in terms of risk and return

Scale Respondents Perc

(Total=1000) (%)


Important 230 23




d) Transperancy in all respects of dealings/charges at the time of investment

Scale Respondents

(Total=1000) (%)


Important 210 21





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e)Mutual funds investors grievance redressal machinery

Scale Respondents Perc

(Total=1000) (%)


Important 410 41




f) Fringe benefits i.e. free insurance, credit cards,loans on collateral,tax benefits etc.

Scale Respondents

(Total=1000) (%)


Important 200 20




TABLE-8.9

What the investor consider first-the features of a product/scheme matching his investmentrequirements or the Mutual Fund itself

Number of respondents Percentage

1.Product/scheme features will 530 53

be considered first

2.Mutual Fund itself launching a 470 47

Product/scheme will be a considered first


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9.LIMITATIONS

The sample size is limited to educated individual investors in the city of Gurgaon.

People were not co-operative enough to provide information regarding their choice.

This study has not been conducted over an extended period of time having both market

ups and downs.The market state has a significant influence on the buying patterns and

preferenves of investors.

Many of the respondent hesitated to divulge the correct amount of their monthly income.

Some of the respondent took help of the imagination instead of reality.

During the survey there may be few investors who may not have complete knowledge of

the Mutual Fund.


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10.ANNEXURE

Study of awareness of investors in MF & Factors Affecting choice of MF companies

Name :Gender:

O Female

O Male

Age in completed years:

O Below 30O 31-40O 41-50O above 50

Academic Qualifications:

O High SchoolO 10+2O GraduateO Post-GraduateO Professional Degree

Marital Status

O MarriedO Single

Occupation

O Professional

O BusinessO SalariedO Retired

Q-1 Annual Income in Rs

O Rs.1,00,001-3,00,000 O Rs.3,00,001-5,00,000O Rs. 5,00,001-10,00,000 O Above Rs 10,00,000


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Q-2 How much do you save annually (in Rs. Approx)

O Less than Rs 50,000 O Rs.50,001 to Rs.100000O Rs.100001 to Rs 200000 O Rs.200001 to Rs.500000O Above Rs.500000

Q-3 Objectives of your savings are:(Rank from 1 O first preference to 5 O last preference)

O To provide for Retirement O For tax reductionO To meet contingencies O For childrens educationO For purchase of assets

Q-4 What is your current preference of saving avenue?(Rank from 1 O first preference to 10 O last preference)

O Currency O Bank DepositO Life Insurance O Pension & Provident Fund O SharesO Unit of UTI & Mutual funds O Postal Savings O ChitsO Real Estate O Gold

Q-5 What is your current attitude towards the following Financial Instruments, in the Indian CapitalMarket?

Highly Favorable Some what Not very Not at allFavorable favorable favorable favorable

Shares O O O O ODebenture/ O O O O Oonds

utual O O O O Ods

Q-6 Generally you prefer mutual fund products/schemes:

(Please Rank from 1 Ofirst preference to 7 Olast preference)

O Growth schemes (capital appreciation)O Income Scheme for Regular DividendO Balanced Schemes (capital appreciation+dividend income)O Index SchemesO Money Market Schemes (short term


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Q-7 You prefer Mutual Fund investment product with:O Short term horizon (less than a year)O Medium Term horizon (>1 year-3 years)O long term horizon (more than three years)

Q-8 You Prefer investment in Mutual Funds products/schemes due to(Rank from 1 to 8 down)

O Safety O Liquidity O FlexibilityO Good Return O Capital Appreciation O Professional ManagementO Tax benefit O Diversification Benefit

Q-9 You would consider the features of a product/scheme matching your investment requirements first or the

fund Itself first?

O Product / Scheme features will be considered firstO Mutual Fund itself launching a product / scheme will be considered first

Q-10There are many factors that could affect your selection of Mutual Funds.Please indicate importance of the following in your decision.

und sponsor Qualities Highly Important Somewhat Not very Not at allimportant Important important important

Sponsor has a recognized O O O O OBrand name

Sponsor has a wellDeveloped research & O O O O OInfrastructure

Sponsors Past performance O O O O O

In terms of risk&return

Transperancy in all aspects O O O O ODealings/charges at the timeOf investment

MFs investors grievance O O O O ORedressal machinery

Fringe benefits i.e., free O O O O OInsurance, credit cards,

Loans on collateral, tax benefits etc.


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11.BIBLIOGRAPHY

Books

Investment & Portfolio Analysis, Frank K Reilly & Keith C. Brown

Marketing Research, Naresh. K. Malhotra

Websites

www.bse.comwww.google.comwww.sbimf.comwww.amfindia.com

www.moneycontrol.comwww.mutualfundsindia.com

www.valueresearchonline.comwww.investopedia.comwww.search.ebscohost.com


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CONCLUSION

Running a successful MF requires complete understanding of the peculiarities of the

Indian stock Market and also the psyche of the smaller investor.This study has made anattempt to understand the financial behaviour of MF investors in connection with thescheme preference and selection.Behavioral trends usually take time to stabilize andthey get disturbed even by a slight change in any of the influencing variables.It is hopedthat the survey findings will have some useful managerial imlication for the AMCs intheir product designing.


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