investor perception selection mutual fund hyderabad project(2)

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SIVA SIVANI INSTITUTE OF MANAGEMENT

SUMMER INTERNSHIP PROJECT

“Investor’s Perception in Selection of Mutual Fund in Hyderabad”

for

SUBMITTED IN FULFILLMENT OF DEGREE OF POST GRADUATE DIPLOMA IN MANAGEMENT 2009-2011

Submitted byPooja Chakraborty

B3-27

UNDER THE ESTEEMED GUIDANCE OF

Mr Muralidhar prashad

Assistant Professor, SSIM

www.final-yearprojects.co.cc | www.troubleshoot4free.com/fyp/

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DECLARATION

I Pooja Chakraborty declare that this Project Report titled “Investor’s Perception in Selection of

Mutual Fund in Hyderabad” had been carried out under the esteemed guidance of Mr

Muralidhar Prashad, the faculty of Siva Sivani Institute of Management in partial fulfillment of

Post Graduate Diploma in Business management. I further declare that it is my original work as a

part of my academic course.

PLACE: SECUNDRABAD Pooja Chakraborty

DATE:


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ACKNOWLEDGEMENT

I would like to express my gratitude to all those who gave me the support to complete this

project. At the outset I acknowledge the opportunity provided to me by UTI Asset Management

Company, Panjagutta Branch, Hyderabad to work on the project, “Investor’s perception in

Selection of Mutual Funds in Hyderabad”

I would like to thank Mr. K.S.Rao – Regional Head, UTI AMC, Hyderabad.

I am grateful to A.Bhashker , company guide, for his guidance, concern, suggestions and never

ending support which always pushed me forward to accomplish my task with perfection.

I have furthermore to thank Mr. Muralidhar Prasad, faculty guide, SSIM Business School,

Hyderabad, without whose valuable guidance, generous help and constant enthusiastic

inspiration this research would have never been a success.

PLACE: SECUNDRABAD Pooja Chakraborty

DATE:


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TABLE OF CONTENT

PARTICULARS PAGE

DECLARATION-------------------------------------------------------------------------------2

ACKNOWLEDGEMENT---------------------------------------------------------------------3 LIST OF TABLES------------------------------------------------------------------------------5

CHAPTER – 1

ABSTRACT-------------------------------------------------------------------------------------7

INTRODUCTION------------------------------------------------------------------------------8

MUTUAL FUND SET-UP--------------------------------------------------------------------9

CHAPTER – 2

INDUSTRY PROFILE------------------------------------------------------------------------19

COMPANY PROFILE-------------------------------------------------------------------------21

CHAPTER-3

OBJECTIVE OF THE STUDY---------------------------------------------------------------28

METHODOLOGY------------------------------------------------------------------------------28

SAMPLE DESIGN------------------------------------------------------------------------------30

LIMITATIONS OF THE STUDY----------------------------------------------------------30


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CHAPTER 4

DATA ANALYSIS & INTERPRETATION------------------------------------------------32

SUGGESTIONS---------------------------------------------------------------------------------52

BIBLIOGRAPHY--------------------------------------------------------------------------------54 REFERENCE-------------------------------------------------------------------------------------54 ANNEXURE--------------------------------------------------------------------------------------53 GLOSSARY OF MUTUAL FUND------------------------------------------------------------56


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LIST OF TABLES

T A B L E P A G E

T A B L E 4 . 1 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3 3

T A B L E 4 . 2 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3 6

T A B L E 4 . 3 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3 8

T A B L E 4 . 4 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4 0

T A B L E 4 . 5 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4 2

T A B L E 4 . 6 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4 6

T A B L E 4 . 7 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4 7

T A B L E 4 . 8 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 4 9

T A B L E 4 . 9 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5 1

T A B L E 4 . 1 0 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5 2


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CHAPTER - 1


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ABSTRACT

Mutual fund is a retail product designed to target small investors, salaried people and others who

are intimidated by the mysteries of stock market but nevertheless, like to reap the benefits of

stock market investing. At the retail level, investors are unique and are a highly

heterogeneous group. Hence, their fund/scheme selection also widely differs. Investors demand

inter-temporal wealth shifting as he or she progresses through the life cycle. This necessitates the

Asset Management Companies (AMCs) to understand the fund/scheme selection/switching

behaviour of the investors to design suitable products to meet the changing financial needs of the

investors. With this background a survey was conducted among 70 Mutual Fund Investors in

various areas of twin city of Hyderabad and Secunderabad to study on Investor’s perception in

selection of mutual fund in Hyderabad. This report discusses the survey findings. It is hoped that

it will have some useful managerial implication for the AMCs in their product designing and

marketing.


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INTRODUCTION

In financial markets, “expectations” of the investors play a vital role. They influence the price of

the securities; the volumes traded and determine quite a lot of things in actual practice. These

‘expectations’ of the investors are influenced by their “perception” and humans generally relate

perception to action. The beliefs and actions of many investors are influenced by the dissonance

effect and endowment effect. This study finds ample proof for the wide prevalence of such a

psychological state among Mutual Fund (MF) investors in India

A Mutual fund is a company that pools the money of many investors to invest in a variety of

different securities. Investments may be in stocks (shares), bonds, money market securities or

some combination of these. Those securities are professionally managed on the behalf of the

investors, and each investor holds a pro rata share of the portfolio-entitled to any profits when

the securities are sold.

Today, minimum investment requirements on many funds are low enough that even the smallest

investor can get started in mutual funds. A mutual fund, by its nature, is diversified – its assets

are invested in many different securities. Beyond that there are different types of mutual funds

with different objectives and levels of growth potential, furthering your chance to diversity.

A MUTUAL FUND SET-UP

A Mutual fund is set up in the form of a trust, which has sponsor, trustees, asset management

company (AMC), and custodian.

Sponsor : The trust is established by sponsor who is like the promoter of a company.

Trustees : The trustees of the mutual fund hold its property for the benefit of the unit

holders.

AMC (Asset Management Company): It is approved by SEBI manages the fund by

making investments in various types of securities.


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Custodian: Who is registered with SEBI, holds the securities of various schemes of the

fund in its custody. The trustees are vested with the general power of superintendence

and direction over AMC. They monitor the performance and compliance of SEBI

regulations by the mutual fund.

SEBI Regulations require that at least two thirds of the director of trustee company or board of

trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of

the directors AMC must be independent. All mutual funds are required to be registered with

SEBI before they launch any scheme.

Net Asset Value: NAV denotes the value of a particular scheme of a mutual fund. The

NAV per unit is the market value of securities of a scheme divided by the total number of

units of the scheme on any particular date.

Advantages and Disadvantages of Mutual Fund

Every investment has advantages and disadvantages. But it's important to remember that features

that matter to one investor may not be important to you. Whether any particular feature is an

advantage for you will depend on your unique circumstances. For some investors, mutual funds

provide an attractive investment choice because they generally offer the following Advantages-

Professional Management: Professional money managers research, select, and monitor

the performance of the securities the fund purchases.

Diversification: Diversification is an investing strategy that can be neatly summed up as

"Don't put all your eggs in one basket." Spreading your investments across a wide range

of companies and industry sectors can help lower your risk if a company or sector fails.

Some investors find it easier to achieve diversification through ownership of mutual

funds rather than through ownership of individual stocks or bonds.


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Affordability: Some mutual funds accommodate investors who don't have a lot of money

to invest by setting relatively low dollar amounts for initial purchases, subsequent

monthly purchases, or both.

Liquidity: Mutual fund investors can readily redeem their shares at the current NAV —

plus any fees and charges assessed on redemption — at any time.

But mutual funds also have features that some investors might view as Disadvantages, such as-

Costs despite Negative Returns: Investors must pay sales charges, annual fees, and

other expenses (which we'll discuss below) regardless of how the fund performs. And,

depending on the timing of their investment, investors may also have to pay taxes on any

capital gains distribution they receive — even if the fund went on to perform poorly after

they bought shares.

Lack of Control: Investors typically cannot ascertain the exact make-up of a fund's

portfolio at any given time, nor can they directly influence which securities the fund

manager buys and sells or the timing of those trades.

Price Uncertainty: With an individual stock, you can obtain real-time (or close to real-

time) pricing information with relative ease by checking financial websites or by calling

your broker. You can also monitor how a stock's price changes from hour to hour — or

even second to second. By contrast, with a mutual fund, the price at which you purchase

or redeem shares will typically depend on the fund's NAV, which the fund might not

calculate until many hours after you've placed your order. In general, mutual funds must

calculate their NAV at least once every business day, typically after the major U.S.

exchanges close.


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Different types of mutual funds

Schemes According To Maturity Period

Open-ended schemes: Open-ended schemes do not have a fixed maturity period.

Investors can buy or sell units at NAV-related prices from and to the mutual fund n any

business day. These schemes have unlimited capitalization as there is no cap on the

amount you can buy from the fund and the unit capital can keep growing. Open-ended

schemes are preferred for their liquidity. Such funds can issue and redeem units any time

during the life of a scheme. Hence, unit capital of open-ended funds can fluctuate on a

daily basis.

The advantages of open-ended funds over close-ended are as follows:

Any time exit option, the issuing company directly takes the responsibility of providing an entry

and an exit. This provides ready liquidity to the investors. Any time entry option, an open-ended

fund allows one to enter the fund at any time and even to invest at regular intervals.

Close-ended schemes: Close-ended schemes have fixed maturity periods. Investors can

buy into these funds during the period when these funds are open in the initial issue.

After that such scheme cannot issue new units except in case of bonus or rights issue.

Scheme According To Investment Objectives

Money Market Funds: Money market funds have relatively low risks, compared to

other mutual funds (and most other investments). By law, they can invest in only certain

high-quality, short-term investments issued by the Indian government, Indian

corporations, and state and local governments. Money market funds try to keep their net

asset value (NAV) — which represents the value of one share in a fund — at stable Rs.

10 per share. But the NAV may fall below rs.10 if the fund's investments perform poorly.

Investor losses have been rare, but they are possible. Money market funds pay dividends

that generally reflect short-term interest rates, and historically the returns for money

market funds have been lower than for either bond or stock funds. That's why "inflation


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risk" — the risk that inflation will outpace and erode investment returns over time — can

be a potential concern for investors in money market funds.

Bond Funds: Bond funds generally have higher risks than money market funds, largely

because they typically pursue strategies aimed at producing higher yields. Unlike money

market funds, the SEC's rules do not restrict bond funds to high-quality or short-term

investments. Because there are many different types of bonds, bond funds can vary

dramatically in their risks and rewards. Some of the risks associated with bond funds

include: Credit Risk Interest Rate Risk, Prepayment Risk.

Stock Funds: Although a stock fund's value can rise and fall quickly (and dramatically)

over the short term, historically stocks have performed better over the long term than

other types of investments — including corporate bonds, government bonds, and treasury

securities. Overall "market risk" poses the greatest potential danger for investors in stocks

funds. Stock prices can fluctuate for a broad range of reasons — such as the overall

strength of the economy or demand for particular products or services.

Not all stock funds are the same. For example:

Growth funds: Focus on stocks that may not pay a regular dividend but have the

potential for large capital gains. Growth funds generally incur higher risks than income

funds (debt) in an effort to secure more pronounced growth. Growth funds are suitable

for investors who can afford to assume the risk of potential loss in value of their

investment in the hope of achieving substantial and rapid gains. They are not suitable for

investors who must conserve their principal.

Income funds: Invest in stocks that pay regular dividends. The aim is to provide regular

and steady to investors. Such schemes generally invest in fixed income securities such as

bonds, corporate debentures, government securities and money market also. Such funds

are less risky compared to equity schemes. These funds are not affected because of

fluctuations in equity markets. However, opportunities of capital appreciation are also


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limited in such funds. The NAVS of such funds are affected because of change in interest

rates in the country. However, long-term investors may not bother these fluctuations

Index funds: Aim to achieve the same return as a particular market index, such as the

S&P 500 Composite Stock Price Index, by investing in all — or perhaps a representative

sample — of the companies included in an index.

Sector funds: These funds specialize in a particular industry segment, such as

technology, infrastructure or consumer products stocks.

Gilt funds: Invest exclusively in government securities. Government securities have no

default risk. NAVs of these schemes also fluctuate due to change in interest rates and

other economic factors as in the case with income or debt oriented schemes.

Tax saving schemes: Investors (individuals and Hindu Undivided Families (“HUFs”)) are being

encouraged to invest in equity markets through Equity Linked Savings Scheme (“ELSS”) by

offering them a tax rebate. Units purchased cannot be assigned / transferred/ pledged / redeemed/

switched – out until completion of 3 years from the date of allotment of the respective Units.

The Scheme is subject to Securities & Exchange Board of India (Mutual Funds) Regulations,

1996 and the notifications issued by the Ministry of Finance (Department of Economic Affairs),

Government of India regarding ELSS. Subject to such conditions and limitations, as prescribed

under Section 88 of the Income-tax Act, 1961, subscriptions to the Units not exceeding Rs.10,

000 would be eligible to a deduction, from income tax, of an amount equal to 20% of the amount

subscribed. HDFC Tax Plan 2000 is such a fund.


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How Funds Can Earn Money for an Investor

One can earn money from your investment in three ways-

Dividend Payments — A fund may earn income in the form of dividends and interest on

the securities in its portfolio. The fund then pays its shareholders nearly all of the income

(minus disclosed expenses) it has earned in the form of dividends.

Dividend reinvestment —Dividend reinvestment is the process of reinvesting the

dividend declared by the company. It enhances the units of the fund rather than NAV.

With respect to dividend payments and capital gains distributions, funds usually will give

you a choice: the fund can send you a check or other form of payment, or you can have

your dividends or distributions reinvested in the fund to buy more shares (often without

paying an additional sales load).

Increased NAV (growth) — If the market value of a fund's portfolio increases after

deduction of expenses and liabilities, then the value (NAV) of the fund and its shares

increases. The higher NAV reflects the higher value of your investment.

Fees and Expenses

As with any business, running a mutual fund involves costs — including shareholder transaction

costs, investment advisory fees, and marketing and distribution expenses. Funds pass along these

costs to investors by imposing fees and expenses. It is important that you understand these

charges because they lower your returns. Some funds impose "shareholder fees" directly on

investors whenever they buy or sell shares. In addition, every fund has regular, recurring, fund-

wide "operating expenses." Funds typically pay their operating expenses out of fund assets —

which mean that investors indirectly pay these costs.


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Shareholder Fees

Sales Charge (Load) on Purchases — the amount you pay when you buy shares in a mutual

fund. Also known as a "front-end load," this fee typically goes to the brokers that sell the fund's

shares. Front-end loads reduce the amount of your investment.

Purchase Fee — another type of fee that some funds charge their shareholders when they

buy shares. Unlike a front-end sales load, a purchase fee is paid to the fund (not to a

broker) and is typically imposed to defray some of the fund's costs associated with the

purchase.

Deferred Sales Charge (Load) — a fee you pay when you sell your shares. Also known

as a "back-end load," this fee typically goes to the brokers that sell the fund's shares. The

most common type of back-end sales load is the "contingent deferred sales load" (also

known as a "CDSC" or "CDSL"). The amount of this type of load will depend on how

long the investor holds his or her shares and typically decreases to zero if the investor

holds his or her shares long enough.

Redemption Fee — another type of fee that some funds charge their shareholders when

they sell or redeem shares. Unlike a deferred sales load, a redemption fee is paid to the

fund (not to a broker) and is typically used to defray fund costs associated with a

shareholder's redemption.

Exchange Fee — a fee that some funds impose on shareholders if they exchange

(transfer) to another fund within the same fund group or "family of funds."

Account fee — a fee that some funds separately impose on investors in connection with

the maintenance of their accounts. For example, some funds impose an account

maintenance fee on accounts whose value is less than a certain amount.


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Load is defined as a charge on purchase/sale of units, which is utilized by AMC to meet the costs

of distribution.

Basically, Indian mutual fund industry charges entry load as per SEBI guidelines is 2.25% and

exit load is nil.

Liquidity in a mutual fund

In open ended schemes you can get your money back promptly at NAV related prices from the

mutual funds itself. When an investor wants the money back, he/she needs to file a request for

redemption (which is annexed to the statement sent to the investor) and submit it to the mutual

fund or registrar directly or through distributor.

Asset allocation

Asset allocation means allocating the investment over the various asset classes. In mutual funds

there are broadly two asset classes namely, equity and debt. Equity delivers higher returns over

longer period of time but is subject to higher risks as compared to debt funds, which deliver

relatively lower returns. As an investor, one has to assess the risk he is willing to undertake and

should allocate the investment accordingly. An investor, who is young and is open to higher

risk, should allocate a higher percentage towards equity. on the other hand, an investor who is

more conservative investors must take into account the time horizon for his investments. For

very short periods an investors must take into account the time horizon for his investments. For

very shot periods cash fund or floaters are most suitable. Equity is meant for logger horizons.

Investors get a certificate or statement of account after investing in a mutual fund

Mutual funds normally dispatch certificates or statements of account a day after the investment

in the scheme. In case of an IPO, a statement of account is issued by the mutual fund within 30

days from the date of closure of initial public offer of the scheme.


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Types of Risks

All investment involves some form of risk. Consider this common type of risk and evaluate

them against potential rewards when you select an investment.

Market risk: At times the prices or yields of all the securities in a particular market rise

or fall due to broad outside influences. When this happens, the stock prices of both an

outstanding, highly profitable company and fledging corporation may be affected. This

change in price is due to “market risk”.

Inflation risk: Sometimes it referred to as “loss of purchasing power.” Whenever

inflation rises forward faster than the earnings on your investment, you run the risk that

you will actually be able to buy less, not more. Inflation risk also occurs when prices rise

faster than your returns.

Credit risk: How stable is the company or entity to which you lend your money you

invest? How certain are you that it will be able to pay the interest you are promised, or

repay your principal when the investment matures?

Interest rate risk: Changing interest rates affect both equities and bonds in many ways.

Investors are reminded that “predicting” which way rates will go is rarely successful.

Exchange risk: A number of companies generate revenues in foreign currencies and may

have investments or expenses also denominated in foreign currencies. Change rates may,

therefore, have a positive or negative impact on companies which in turn would have an

effect on the investment of the fund.

Investment risks: The sectoral fund schemes, investments will be predominantly in

equities of select companies in the particular sectors. Accordingly, the NAV of the

schemes are linked to the equity performance of such companies and may be more

volatile than a more diversified portfolio of equities.


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CHAPTER - 2


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INDUSTRY PROFILE

The origin of mutual fund industry in India is with the introduction of the concept of mutual fund

by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987

when non-UTI players entered the industry.

In the past decade, Indian mutual fund industry had seen dramatic improvements, both quality

wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the

Assets Under Management (AUM) was Rs. 67 bn. The private sector entry to the fund family

raised the AUM to Rs. 470 bn in March 1993 and till April 2004; it reached the height of 1,540

bn.

Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than

the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian

banking industry. The main reason of its poor growth is that the mutual fund industry in India is

new in the country. Large sections of Indian investors are yet to be intellectuated with the

concept. Hence, it is the prime responsibility of all mutual fund companies, to market the product

correctly abreast of selling.

The mutual fund industry can be broadly put into four phases according to the development of

the sector. Each phase is briefly described as under.

First Phase - 1964-87

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

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

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

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

first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700

crores of assets under management.


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

Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Canbank Mutual

Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov

89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC in 1989 and GIC in

1990. The end of 1993 marked Rs.47,004 as assets under management.

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

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

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

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

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

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

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and

revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual

Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds setting

up funds in India and also the industry has witnessed several mergers and acquisitions. As at the

end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The

Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other

mutual funds.

Fourth Phase - since February 2003

This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is the

Specified Undertaking of the Unit Trust of India with AUM of Rs.29,835 crores (as on January

2003). The Specified Undertaking of Unit Trust of India, functioning under an administrator and

under the rules framed by Government of India and does not come under the purview of the


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Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered

with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the

erstwhile UTI which had in March 2000 more than Rs.76,000 crores of AUM and with the

setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with

recent mergers taking place among different private sector funds, the mutual fund industry has

entered its current phase of consolidation and growth. As at the end of September, 2004, there

were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

About the company – UTI Asset Management Co.(P) Ltd.

Vision:

To be the most Preferred Mutual Fund.

Mission: UTI Mutual Fund

•To become the most trusted brand, admired by all stakeholders.

•To become the largest and most efficient money manager with global presence.

•To become the best in class customer service provider.

•To become the most preferred employer.

•To become the most innovative brand and the best wealth creator.

•To become a socially responsible organisation known for best corporate governance.

Genesis

UTI Mutual Fund started to pave its path on Jan 14, 2003, following the vision of UTI Asset

Management Company Limited, who has been appointed by the UTI Trustee Private Limited Co.

for managing the schemes of UTI Mutual Fund and the schemes transferred/migrated from the

erstwhile Unit Trust of India.


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The UTI Asset Management Company provides professionally managed back office support for

all business services of UTI Mutual Fund (excluding fund management) in accordance with the

provisions of the Investment Management Agreement, the Trust Deed, the SEBI (Mutual Funds)

Regulations and the objectives of the schemes. State-of-the-art systems and communications are

in place to ensure a seamless flow across the various activities undertaken by UTIMF.

UTI AMC has been a registered portfolio manager under the SEBI (Portfolio Managers)

Regulations, 1993 since 3rd February 2004, for undertaking portfolio management services and

also acts as the manager and marketer to offshore funds through its 100 % subsidiary, UTI

International Limited, registered in Guernsey, Channel Islands.

Assets Under Management (AUM)

UTI Asset Management Company presently manages a corpus of over Rs.52,464 crores1 as on

29th Feb' 2008. UTI Mutual Fund has a track record of managing a variety of schemes catering

to the needs of every class of citizenry. It has a nationwide network consisting 88 UTI Financial

Centres (UFCs) and UTI International offices in London, Dubai and Bahrain. With a view to

reach to common investors at district level, 3 satellite offices have also been opened in select

towns and districts.

UTI AMC has a well-qualified, professional fund management team, which has been highly

empowered to manage funds with greater efficiency and accountability in the sole interest of unit

holders. The fund managers are also ably supported with a strong in-house securities research

department. To ensure better management of funds, a risk management department is also in

operation.

Reliability

UTIMF has consistently reset and upgraded transparency standards. All the branches, UFCs and

registrar offices are connected on a robust IT network to ensure cost-effective quick and efficient

service. All these have evolved UTI Mutual Fund to position as a dynamic, responsive,

restructured, efficient and transparent SEBI compliant entity.


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Asset Management

UTI Asset Management Co. Ltd. (UTIAMC) is a company incorporated under The Companies

Act, 1956. UTIAMC was appointed as the Asset Management Company of the UTI Mutual Fund

in terms of the Investment Management Agreement executed between UTI Trustee Co. Ltd. and

UTIAMC on December 9, 2002. UTIAMC was registered by SEBI to act as the asset

management company for UTI Mutual Fund vide its letter of January 14, 2003.

The paid up capital of UTIAMC has been subscribed equally by four sponsors: State Bank of

India, Life Insurance Corporation of India, Bank of Baroda and Punjab National Bank.

UTIAMC, apart from managing the schemes of UTI Mutual Fund, also manages the schemes

transferred/migrated from the erstwhile Unit Trust of India, in accordance with the provisions of

the Investment Management Agreement, the Trust Deed, the SEBI (Mutual Funds) Regulations

and the objectives of the schemes. UTIAMC has also entered into a service agreement with the

Administrator of the Specified Undertaking of the Unit Trust of India (SUUTI) to provide them

with back office support for business processes. UTIAMC is also a registered Portfolio Manager

under the SEBI (Portfolio Managers) Regulations, 1993 since February 3, 2004 for undertaking

portfolio management services

Subsidiaries

UTI International Ltd. (UTIIL) is a 100% subsidiary of UTIAMC, registered in Guernsey,

Channel Islands, which acts as the manager to offshore funds and markets these offshore funds

abroad. Towards expansion of its activities, UTIIL has signed a joint venture agreement with

Shinsei Bank Ltd. of Japan to set up UTI International (Singapore) Pvt. Ltd.

UTIIL is focussed on investment management and distribution of financial products in the South

East Asian region. UTIIL also manages funds investing in other jurisdictions.

UTI Retirement Solutions Ltd. (UTIRSL), is a 100% subsidiary of UTIAMC which was

incorporated in December, 2007 and started operations w.e.f. March, 2008. UTIRSL has been set

up to carry out the operations as a Pension Fund Manager under the New Pension System set up


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by Pension Fund Regulatory and Development Authority (PFRDA). UTIRSL was initially

appointed by the NPS to manage the pension funds of the government employees. In March,

2009, the Company has also been appointed by NPS for management of pension funds for non-

government employees. UTI Ventures is a 100% subsidiary of UTI AMC, UTI Ventures is a

leading Indian private equity firm. Focused on growth capital, we propel the ambitions of

passionate Indian entrepreneurs, while unlocking superior returns for our investors. Our

demonstrated track record of successful investments, led by an experienced management team,

positions our funds among top performers in India.

Recent Awards won by the Company

At UTI Asset Management Company Ltd., has won 3 prestigious award.

CNBC TV18 - CRISIL Mutual Fund of the Year Awards for 2009

Mutual Fund of the Year

UTI AMC LTD.

Total Fund Houses = 26

1 yr performance ended 31, Dec 2009

Emerging Equity Fund of the Year

UTI wealth builder series II

1 yr performance ended 31 Dec, ‘09

Total Schemes in Category = 14


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Apart from that UTI mutual fund also won many awards from CNBC TV18- CRISIL Mutual

fund of the year award foe 2009 in the category of Large Cap oriented Equity fund, Income

funds, Monthly income plus, Income-short term funds.

UTI Mutual Fund has been awarded the “STAR FUND HOUSE OF THE YEAR” in the Equity

Category by ICRA Mutual Fund Awards 2009. The rank indicates ‘Best Performance’ in the

‘Equity Category’ for one year period ending December 31, 2008.

UTI Master Index Fund has been ranked as a Seven Star Fund and awarded the ICRA 7-Star

Gold Award in the category of ‘Open Ended Equity Index’ schemes for its 1 year performance

till December 31, 2007. The rank indicates top performance within the specified category for its

1 year performance.


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CHAPTER - 3


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OBJECTIVES OF THE STUDY

This study has following objectives

To identify the investment pattern among investors.

To identify how the age factor effect in selection of mutual funds.

To identify the features the investors look for in Mutual fund product.

To identify the scheme preference of investors.

METHODOLOGY

Primary source

Observation method

Questionnaire survey

Unstructured interview

Secondary source

Fact sheet of particular fund

Internet

Newspaper

Magazines

Others


29 | P a g e

Primary Sources

Observation method

This is one of the most reliable sources of collecting primary information. During two months

summer internship program, I have collected too much information from customers about the

product. Most of the customers rely on 100% equity based product, and the rest are looking for

debt as well as government security based product.

Whereas, I have told the person about the mutual fund those who are looking for equity-based

product from conservative point of view. It is sure that mutual fund is the subject to market risk.

But risks are diversified in the mutual fund; the customers are shown the asset allocation and the

performance of the particular fund so that they can understand that risk is less than the

shareholders.

Those who wanted to invest money and were looking for debt based product from conservative

point of view. I recommended that you should invest your money in mutual fund in that scheme

which is having 40-50% equity and 50-60% debt instruments.

Questionnaire

For this study data are collected with the help of questionnaire. For that purpose the research has

conducted between 150 respondents form various parts of Hyderabad and Secunderabad.

Unstructured interview

For this study few unstructured interviews are also done with the investment executives of

various asset management companies.


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SAMPLE DESIGN

A sample of 150 respondents has taken randomly from the various areas of the twin city

Hyderabad and Secunderabad

The total numbers of respondents have divided into different groups as per their Age and

Life cycle

Group A- Students and Unmarried (18 yrs. To 25 yrs.)

Group B- Young Married Stage (25 yrs. To 35 yrs.)

Group C- Working People with Younger Children (35 yrs. To 45 yrs.)

Group D- Working People with Older Children (45 yrs. To 55 yrs.)

Group E- Retired People (more than 55 yrs.)

LIMITATIONS OF THE STUDY

This study has following limitation with it

Sample size is limited to 150 respondents

Sample size may not adequately represent the national market


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CHAPTER - 4


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DATA ANALYSIS AND INTERPRETATION

Table: 1 SAVING IN FINANCIAL INSTRUMENTS

GROUP YES NO TOTAL

A: STUDENT AND UNMARRIED 8 10 18

B: YOUNG MARRIED STAGE 22 8 30

C: WORKING PEOPLE WITH YOUNGER CHILDREN 35 9 44

D: WORKING PEOPLE WITH OLDER CHILDREN 41 5 46

E: RETIRED PEOPLE 10 2 12

TOTAL 116 34 150


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34 | P a g e

Investment decision of individuals depends to a large extent on income, expenses and cash flow

requirement of individuals.

Out of the 18 respondent from Group A 10 say that they don’t invest in financial instruments,

this is because there ability to invest in financial instruments gets limited due to higher spending.

As most of the responders from these groups are students and attracted toward banks, because of

bank’s fund transfer mechanism which they widely used in their day to day financial

transactions.

And almost all responder from remaining do invest there saving in financial instruments, because

there cash flow requirement is completely different from Group A. Like they have basic needs

such as –

Housing and insurance needs

Consumer finance needs

Children’s education

Children’s marriage

Medical cover

Need for pension

So based upon these needs individual take there investment decision for different financial

instruments.


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Table: 2 PREFERENCE OF INVESTMENT

GROUP BANK POS MF SHARE BOND &

DEBENTURE

INSURANCE TOTAL

A.STUDENT AND

UNMARRIED

10 0 6 2 0 0 18

B.YOUNG MARRIED

STAGE

20 0 6 4 0 0 30

C.WORKING PEOPLE

WITH YOUNGER

CHILDREN

15 0 20 0 4 5 44

D.WORKING PEOPLE

WITH OLDER

CHILDREN

12 2 10 9 6 7 46

E.RETIRED PEOPLE 8 2 2 0 0 0 12

TOTAL 65 4 44 15 10 12 150


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Various investment options available to the individuals are Bank deposit, Post office scheme,

Mutual funds, Shares etc and investors put their money according to their financial needs and

risk appetite.

Majority of the respondents prefer Bank and Mutual fund as their favourite invest option.

However about 43% of respondents favour Bank as the most preferred investment option across

the groups. This trend clearly shows the traditional investment attitude still remains in the

investors minds.

Again 8 out of 12 Retired people show there interest in bank deposit because of there low ability

to take risk and most important reason is there protection needs i.e. need for regular income,

need for retirement income and need for insurance cover retired people show less interest in

Shares and Mutual funds. Only 2 persons go for Post office deposit and Mutual fund investment

out of 12 Retired persons.


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Working people with younger children (46%) and Working people with older children (22%)

prefer Mutual funds as this is because of there ability to face the up and down of stock market

and they are in a position to take the higher risk.

Table: 3 INVESTMENTS IN MUTUAL FUND

GROUP YES NO TOTAL

A.STUDENT AND UNMARRIED 6 12 18

B.YOUNG MARRIED STAGE 20 10 30

C.WORKING PEOPLE WITH YOUNGER

CHILDREN

30 14 44

D.WORKING PEOPLE WITH OLDER

CHILDREN

35 11 46

E.RETIRED PEOPLE 4 8 12

TOTAL 95 55 150


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About 63 % of the respondents invest there saving in Mutual Funds. Respondent from Student

and Unmarried group does not shown favourable response towards the investment in mutual

fund because most of them are student and depends upon parents, so they don’t have enough

saving for investment in mutual funds. Also the Retired persons do not shown interest in mutual

fund investment. Only 4 persons out of 12 respondents invested in the mutual funds. Other than

that majority of investors from all the groups have shown interest in Mutual Funds. This is

because Mutual funds cater all type of investment needs of investors. Mutual Funds generally

offer different type of products to all type of investments need.

Table: 4 REASONS BEHIND NOT INVESTING IN MUTUAL FUND

GROUP LACK OF

KNOWLEDGE

RISKY

INVESTMENT

LACKOF

GUIDANCE

LOWER

RETURN

TOTAL

A.STUDENT AND

UNMARRIED

7 3 2 0 12

B.YOUNG

MARRIED

STAGE

4 1 5 0 10

C.WORKING

PEOPLE WITH

YOUNGER

CHILDEREN

0 4 8 2 14

D.WORKING

PEOPLE WITH

OLDER

CHILDEREN

0

2 4 5 11

E.RETIRED 0 5 2 1 8

TOTAL 11 15 21 8 55


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Respondent from the Student and Unmarried group does not invest in mutual fund, because of

the lack of knowledge whereas working people with younger children does not invest in the

mutual fund because of the lack of guidance in the right kind of investment portfolio. Retired

people say that they are not in a position of taking risk in that stage of life (reaping stage).

Overall among all the respondents who do not want to invest in the mutual funds show that the

lack of guidance is the main factor for not investing (38%).


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Table: 5 REASONS BEHIND INVESTING IN MUTUAL FUND

GROUP REASONS FOR INVESTMENT

A B C D TOTAL

A.STUDENT AND

UNMARRIED

0 0 5 1 6

B.YOUNG MARRIED

STAGE

2 5 10 3 20

C.WORKING PEOPLE

WITH YOUNGER

CHILDEREN

8 2 10 10 30

D.WORKING PEOPLE

WITH OLDER

CHILDEREN

5 5 15 10 35

E.RETIRED 1 2 1 1 4

TOTAL 16 14 41 25 95

Where as (Reasons for investment)-

A =Mutual Fund is safer comparing others investments

B =Investment generates regular income

C=Investment generates both current income and growing over a period of time

D =Creation of wealth, not current income


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Pie chart showing percentage for different reasons for investing in Mutual Fund

Majority of the respondent from Group A say that they invest in Mutual Funds for both

current income and growth prospect.

Respondent from Group B have a mixed opinion. Most of them invest in the mutual fund

for both current income and growth prospect (50%) and also for getting regular income

(25%).

Respondent from Group C says that they invest in mutual fund because of both current

income and investment growth prospect (33%) and also for creation of wealth over a

period of time (33%), because at this stage they have to think about the present need and

also future needs like children education there marriage and housing.


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Similar as Group C, 43% of the respondents from Group D says that the reason behind

investing in mutual fund is the need both for current income and growth prospect.

Whereas 28% shows the reason for investment as the creation of wealth, not for current

income because at this stage of life they have to think about there future security also.

Group E shows a mix of all reasons for investing in mutual funds such as regular income,

future growth and current income with future growth prospect. They need regular income

because at this stage of life they need regular source of income which they can spend on

current needs and also secure the future uncertainties.

Table: 6 TYPES OF FINANCIAL NEEDS

GROUP TYPES OF NEEDS

A B C TOTAL

A.STUDENT AND

UNMARRIED

5 12 1 18

B.YOUNG MARRIED STAGE 3 15 12 30

C.WORKING PEOPLE WITH

YOUNGER CHILDEREN

2 22 20 44

D.WORKING PEOPLE WITH

OLDER CHILDEREN

10 25 11 46

E.RETIRED 8 4 0 12

TOTAL 28 78 44 150


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Where as (Types of needs)-

C- Medium to long term needs

Pie chart showing the percentage of different types of needs for Mutual fund investors

Financial goals and plans depend on large extant on the income, expenses and cash flow

requirement of individuals. It is well known that the age of investor is an important determinant

of financial goals. In the following questionnaire it is well clear. Financial need of individual can

be classified as-

Immediate and short term need

Medium term needs

Short term needs

A- Immediate and short term

B- Medium term needs


45 | P a g e

In questionnaire

Around 67% of respondents from Group A go for Medium term needs. Respondent from Group

B have a mixture of needs i.e. 50% invest in mutual fund for Medium term needs and 40%

invests for Medium to long term needs. Group C has 50% preference for Medium term needs and

45% for Medium to Long term needs mainly for children education, housing finance etc.

54% from Group D go for Medium term needs for children education marriage, pension savings,

insurance and medical coverage etc. whereas, 67% from Group E that is from retiring people go

for mainly invest for Short term needs.

Therefore invest plan of individual or choice of Mutual fund product depend upon these financial

needs. There product choice can be categories as

STUDENT AND UNMARRIED Liquid plan and some exposure to equity and

Pension Product

YOUNG MARRIED STAGE Fixed income, insurance and Equity product

WORKING PEOPLE WITH Portfolio of product for Growth and long

YOUNGER CHILDREN growth

WORKING PEOPLE WITH Portfolio of product including equity, debt

OLDER CHILDREN and pension plan

RETIRED PEOPLE Liquid and income generating products


46 | P a g e

Table: 7 OBJECTIVES BEHIND MUTUAL FUND INVESTMENT

GROUP GROWTH

OF

INVESTMENT

REGULAR

DIVIDEND

TAX

SAVING

ASSURED

RETURN

TOTAL

A.STUDENT AND

UNMARRIED

15 0 0 3 18

B.YOUNG MARRIED

STAGE

20 0 5 5 30

C.WORKING PEOPLE

WITH YOUNGER

CHILDREN

20 10 11 3 44

D.WORKING PEOPLE

WITH OLDER

CHILDREN

4 10 7 25 46

E.RETIRED PEOPLE 1 5 2 4 12

TOTAL 60 25 25 40 150


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Investment objectives can be classified as

Growth of investment

Regular dividend

Tax saving

Assured return

Most of the respondents from group A (83%) and group B (67%) go for the Growth of

investment.

Respondent from Young married stage go for growth of investment because in this stage

investors are earning and they have no need for investment income and they focus on saving and

accumulating wealth for long term. The majority of the respondents from group C (45%) invest

in mutual fund for growth of investment. And in case of Group D i.e. Working people with older

children aims for assured income while investing in mutual fund for there needs like higher

studies of children and their marriage, housing finance etc.


48 | P a g e

But financial needs for Group E (Retired people) are completely different they need regular

dividend because in thin stage of life investor need income from there investor and also for the

objective of assured income.

TABLE: 8 PART OF SAVING IN MUTUAL FUND

GROUP % OF INVESTMENT

A

50%

B

40%

C

30%

D

20%

TOTAL

A.STUDENT AND

UNMARRIED

0 0 5 1 6

B.YOUNG MARRIED STAGE 1 10 8 1 20

C.WORKING PEOPLE WITH

YOUNGER CHILDEREN

3 15 10 2 30

D.WORKING PEOPLE WITH

OLDER CHILDEREN

2 10 15 8 35

E.RETIRED 0 1 2 1 4

TOTAL 6 36 40 13 95


49 | P a g e

Pie chart showing percentage of savings in Mutual fund by different investor groups

Part of saving investment in Mutual Funds depend the ability of taking risk which may vary with

age group and there ability to save money.


50 | P a g e

It clearly shows that across different groups of people no one is willing to invest 50% of their

saving in the Mutual fund. Group A (Students and Unmarried people) invests only 30% of their

savings in the mutual fund. Further 50% of Group C i.e. Working people with younger children

save 40% of their savings in the mutual funds. Whereas, 43% of the Working people with older

children (Group D) invests 30% and about 29% people invest 40% of their savings in the mutual

fund.

And incase of Retired people mostly it goes for 30% of total savings to the mutual fund

investment.

TABLE: 9 FUND PREFERENCE

GROUP DEBT EQUITY HYBRID TOTAL

STUDENT AND UNMARRIED 2 4 0 6

YOUNG MARRIED STAGE 4 8 8 20

WORKING PEOPLE WITH

YOUNGER CHILDEREN

8 12 10 30

WORKING PEOPLE WITH

OLDER CHILDEREN

4 11 20 35

RETIRED 3 0 1 4

TOTAL 21 35 39 95


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Majority of the investors across the investor groups prefers hybrid fund (41%) and also for

equity fund (37%)

TABLE: 10 EXPERIENCE WITH MUTUAL FUND

GROUP EXCELLENT VERY GOOD

GOOD POOR TOTAL

STUDENT AND UNMARRIED

0 0 6 0 6

YOUNG MARRIED STAGE 0 8 11 1 20

WORKING PEOPLE WITH 4 5 19 2 30

WORKING PEOPLE WITH OLD

6 4 24 1 35

RETIRED PEOPLE 0 2 0 2 4

TOTAL 10 19 60 6 95


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Almost 63% of the investors across the different investors define their overall experience as

Good and only 6% of 95 investors define their experience as Excellent, whereas 6% also

having Poor experience.

SUGESSITIONS:-

The falling interest rates and a reasonably good performance of many growth schemes

during the turn of the century might have been the reason for the high preference of

Growth Schemes during the period under study. Now the scale is in favour of Income

Schemes. So, it is suggested that AMC’s should react in time to the changing market

moods by launching new products or repositioning old ones. Deviation from the stated

investment objectives without authority should be dealt seriously by the regulatory

bodies. Safety of capital subject to market risk, should be assured to the MF investor


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Before development of any mutual fund product AMC’s should consider what the

expectations of investors are so that MF product fulfill the financial needs of investor.

AMC’s have to develop variety of product so that investors from all groups (age, income,

occupation etc) can invest in a MF products.

Company should try to conduct program like “investment guide campaign” and event to

create awareness among the investors about mutual fund.

Study shows that people from Group A show low interest in MF investment so AMC’s

are required are required to pay more attention to this segment.

The AMC should maintain relationship with the banks at a regular basis, as it is one of

most potential source for getting investment.

The AMC should provide the little bit fixed returns on investment so that the investors

can rely on that

The investors should look after the performance of the fund in the newspaper so that

they can measure whether that fund is performing well or not. Investors are influenced by

the extent and quality of disclosure of Information subsequent to their investment

regarding disclosure of NAV, Portfolio of investment and disclosure of deviation of

investment from the stated objectives and the attached fringe benefits to the scheme in

their selection of the scheme.

Mutual fund schemes should give added benefits like “Insurance coverage” to attract

more number of investors.


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BIBLIOGRAPHY

MF Mutual Funds

SEBI Securities and Exchange Board of India.

AMC Asset Management Company

PNB Punjab National Bank

Group A Student And Unmarried

Group B Young married stage

Group C Working people with younger children

Group D Working people with older children

Group E Retired people

REFERENCES

1. Fundwatch- monthly internal circulation magazine of UTI AMC

2. http://www.indiacapital.com/mfunds_m.htm

3. AMFI Study Guide by UTI MF

4. Mutual Fund Investment Guide, March 2008, Business Standard, Hyderabad

5. http://www.amfiindia.com/showhtml.asp?page=mfindustry

6. http://in.savings.yahoo.com/060904/93/6796h.html

7. www.mutualfundsindia.com


Pawan

FYP

55 | P a g e

ANNEXURE

QUESTIONNAIRE FOR INVESTORS

(I WISH A POSITIVE RESPONSE FROM YOU)

NAME____________________________________

AGE___________ SEX____________ QUALIFICATION________________ INCOME________________________ OCCUPATION___________________

MARTIAL STATUS_______________CHILDREN______________________

ADDRESS__________________________________________________________

1. Are you saving your money in financial instruments?

Yes No

2. In which of the following mode do you invest your savings?

Bank deposit post office scheme mutual fund

Shares Bonds & Debenture Insurance

3. Have you ever invested in mutual funds?

Yes No

4. What are your financial needs?

Immediate and short term Medium term needs Long term needs


56 | P a g e

5. Which of the following objective is important for you?

Growth of investment Regular dividend

Tax saving Assured return

6. If yes, what’s your experience with mutual funds?

Excellent Very good

Good Poor

7. If no, what’s your reason behind not investing in mutual funds?

Lack of knowledge Risky investment

Lack of guidance Low return

8. Which of the following is the reason for your investment in mutual funds?

A .Investment should be absolutely safe with no risk.

B. Investment should generate the regular income that can spend.

C. Investment should generate some current income and growing. D. Creation of wealth, not current income.

9. What part of saving you invest in mutual funds? (In Percentage)

More than 50 40-50 30-40 20-30

Less than 30

10. In which type of funds do you invest?

Debt Equity Hybrid (Balanced)


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G L O S S A R Y O F M U T U A L F U N D S

Asset Allocation - The process of diversifying investments among different types of assets like

stocks, bonds and cash in order to optimize risk / return tradeoff based on a person’s financial

situation and goals.

Asset Class - Different types of investments such as stocks, bonds, real estate and cash.

Asset Management Company - A firm that invests the pooled funds of retail investors in

securities in line with the stated investment objectives. For a fee, the investment company

provides more diversification, liquidity, and professional management service than is normally

available to individual investors.

Assets - An item of value owned by an individual or an organization. It could be stocks, cash,

house or a car.

Automatic Investment Plan - Periodic investment of a fixed amount by a unitholder, either

directly from his bank account or by issuing post-dated cheques, in his mutual fund account. It

allows the investor to benefit from rupee-cost averaging.

Automatic Withdrawal Plan - Allows an investor to receive periodic payments of fixed amount

or units from his investment in a mutual fund scheme. Retirees who want a regular income

supplement often choose this.

Average Portfolio Maturity - The average maturity of all the bonds in a bond fund’s portfolio.

Back-End/Redemption/Exit Load - One of two possible sales charge imposed by funds that

charge fees. Redemption load is a charge an investor pays when units are redeemed or sold back

to the fund. It sometimes depends on how long the investment is held -- generally the longer the

time period, the smaller the charge.

Balanced/Hybrid Scheme - A mutual fund scheme with an investment objective of both long-

term growth and Income, through investment in stocks and bonds. Typically, the stock-bond


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ratio ranges around 60%-40% in an effort to obtain the highest returns consistent with a low risk

strategy.

Basis Point (BP) - The smallest measure used in quoting yields on fixed income securities. One

basis point is one percent of one percent, or 0.01%.

Bear Market - A prolonged period of falling securities prices in a stock market.

Benchmark - A standard used for comparison. Usually to provide a point of reference for

evaluating a fund's performance. The common benchmark for equity-oriented funds is the BSE

200 index or the BSE Sensex.

Bond - A debt security, or an IOU, issued by a company or government agency. A bond investor

lends money to the issuer and, in exchange, the issuer promises to repay the loan amount on a

specified maturity date; the issuer usually pays the bondholder periodic interest payments over

the period of the loan.

Bond Scheme - A scheme that invests primarily in bonds with the general emphasis on income

over growth.

Bull Market - A prolonged rise in the price of stocks, bonds or commodities characterized by

high trading volumes.

Call Risk - The risk that bonds will be redeemed (or "called") before maturity. This possibility

increases during periods of falling interest rates.

Capital Gain - The amount by which an investment’s selling price exceeds its purchase price.

Capital Market - A market where debt or equity securities are traded.

Contingent Deferred Sales Charge (CDSC) - A type of back-end sales load charged when

shares are redeemed within a specific period following their purchase. Usually assessed on a

sliding scale, these charges reduce, the longer the units are held.


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Closed-End Scheme - A mutual fund scheme that offers a limited number of units which have a

lock-in period, usually of three to five years. ELSS schemes are closed-ended schemes. The units

of closed-end funds are often listed on one of the major stock exchanges and traded like

securities at prices which may be higher or lower than its net asset value.

Commercial Paper - Debt instruments issued by corporations to meet their short-term financing

needs. Such instruments are unsecured and have maturities ranging from 15 to 365 days.

Commission - A fee charged by a broker or distributor for his/her service in facilitating a

transaction.

Compound Interest - Interest earned not only on the initially invested principal but also on

accumulated interest during the period.

Coupon - Interest rate on a debt security that the issuer promises to pay to the holder until

maturity. Usually expressed as a percentage of the face value of the security.

Credit Rating - A measure of a bond issuer's creditworthiness or the ability to repay the loan as

rated by an independent rating agency, such as CRISIL, ICRA and CARE.

Credit Risk - The possibility that a bond issuer will default, and fail to repay principal or interest

as promised. Also known as "default risk".

Cumulative Quantitative Discount (CQD) - Cumulative quantitative discount (CQD) is

discount on sales load to investors on increasing purchase of units.

Custodian - The organization (usually a bank) that keeps and safeguards the custody of

securities and other assets of a fund.

Depreciation - A decline in an investment's value.

Distribution - The payment of dividends to unit holders by a mutual fund.

Diversification - The strategy of spreading investments among different securities to reduce risk.

By nature, mutual funds are a diversified investment.


60 | P a g e

Dividend - Profits, stock dividends or interest income which fund’s distribute to its unitholders.

Dividend Reinvestment - A unitholder service that allows dividend distributions to be

reinvested automatically to purchase more fund units.

Equity Schemes - A scheme that invests primarily in stocks while seeking to provide relatively

high long-term growth of capital.

Ex-Dividend Date - The date following the record date for a scheme. When a fund's net asset

value reduces by an amount equal to a dividend distribution.

Expense Ratio - A fund's operating expenses, expressed as a percentage of its average net assets.

Family Of Schemes - A set of schemes with different investment objectives from a single asset

management company usually allowing investors to switch their investments from one scheme to

another at a no charge or a nominal charge.

Fixed Income Security - A security that pays a fixed rate of interest such as a bond but do not

offer an investor much potential for growth.

Front-End Load - A one-time charge that an investor pays at the time of buying units of a

scheme.

Fully Invested - The investment of nearly all available assets in securities as per the stated

objective of the scheme and having no cash or cash equivalents in one’s portfolio.

Fund Manager - The individual responsible for making portfolio decisions for a mutual fund.

Inception Date - The date when a scheme’s initial offering period ends and the scheme’s

formation takes place.

Income /Debt Scheme - A scheme that invests primarily in fixed income securities. Typically,

income schemes seek to provide current income rather than growth of capital.


61 | P a g e

Index - A benchmark against which the performance of a scheme is measured. Usually, equity

funds use BSE 30 or BSE 200 as the benchmark. For fixed-income funds it is a bond index. The

benchmark index must consist of securities similar to which the scheme invests in.

Index Fund - A fund that tries to mirror the performance of an index by investing in securities

making up that index. (Note: it is not possible for investors to actually invest in the actual index,

such as the BSE 30).

Inflation Risk - The possibility that the value of assets or income will be eroded by inflation

affecting the purchasing power of a currency. Often mentioned in relation to fixed income funds

as while they may minimize the possibility of losing principal, they expose an investor to

inflation risk.

Load - A one-time sales charge paid by an investor while buying or selling units of a scheme.

Typically, there are two types of loads front-end, charged at the time of purchase and back-end,

charged at the time of redemption.

Liquidity - The ease with which an investment can be converted into cash or cash equivalents.

Mutual fund units are generally considered highly liquid investments as they can be sold on any

business day at their current net asset value.

Management Fee - The amount a scheme pays to its asset management company for its

services. Typically, a certain percentage of assets under management. A fund's management fee

is listed in its offer document.

Maturity Date - The date on which the principal amount of a bond is to be paid in full.

Minimum Purchase - The smallest investment amount a scheme will accept to open a new

unitholder account.

Money Market Fund - A fund that invests in the short-term, high-grade securities sold in the

money market including government securities, treasury bills, certificates of deposit, and

commercial paper.


62 | P a g e

Mutual Fund - An investment company through which an investor can pool his money with

other investors who have a similar objective. Professional investment managers, then invest the

pool in securities which in their judgement will help investors achieve their objective. Mutual

funds offer the benefits of portfolio diversification (which provides greater safety and reduced

volatility), professional management, liquidity and convenience.

Net Asset Value (NAV) - The market value of a mutual fund unit. It is calculated daily by taking

the funds total assets, securities, cash and any accrued earnings, deducting liabilities, and

dividing the remainder by the number of units outstanding.

Net Assets - The net worth of a fund.

No Load Fund - A fund that sells its units to investors without a sales load/charge.

Offer Document / Prospectus - A legal document that describes a mutual fund scheme. It

contains information required by the Securities and Exchange Board of India explaining the

offer, including the terms, issuer, objectives, historical financial statements, and other

information that could help an individual decide whether the investment is appropriate for him.

Open-Ended Scheme - A scheme where investors can buy and redeem their units on any

business day. Its units are not listed on any stock exchange but are bought from and sold to the

mutual fund.

Operating Expenses - The day-today costs a mutual fund incurs in conducting business, such as

for maintaining offices, staff, and equipment. These expenses are paid from the fund's assets

before any earnings are distributed.

Portfolio - A collection of securities owned by a mutual fund. A fund's portfolio may include a

combination of stocks, bonds, and money market securities.

Portfolio Manager - The individual responsible for managing a mutual fund's portfolio.

Rupee Cost Averaging - An investment strategy that involves investing a fixed amount in a

scheme at regular intervals - say, monthly or quarterly. As a result, more fund units are bought


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when prices are low than at high prices, usually bringing down an investor's average cost per

share over time.

Sector Fund - A fund that invests primarily in securities of companies engaged in a specific

industry. Sector funds entail more risk, but may offer greater potential returns than funds that

diversify their portfolios.

Settlement Date - The date by which a transaction must be settled, that is, to make the payment

of funds and the delivery of securities.

Standard Deviation - A measure of the degree to which a fund's return varies from the average

of the scheme’s own return.

Stock Fund - A fund that invests primarily in stocks.

Switching - The movement of investment from one scheme to another usually within the family

of schemes. An investor may switch schemes because of market conditions.

Turnover Rate - Based on the corpus, it is the number of times at which the fund buys and sells

securities each year.

Unit holder - An investor, owning units of a mutual fund.

Volatility - The rate by which the price of a security fluctuates in changing market conditions.

Yield - The annual rate of return on an investment usually expressed as a percentage.

Zero Coupon Bond - A bond issued at a discount which accrues interest that is paid in full at

maturity.


investor perception selection mutual fund hyderabad project(2)

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