final report- jm financial by sony saju george

8/8/2019 Final Report- JM Financial by Sony Saju George

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A Report of

A Study onCOMPARITIVE ANALYSIS OF ACTIVE AND PASSIVE STRATEGY

IN MUTUAL FUNDS

for

JM FINANCIAL SERVICES PVT LTD

Submitted to the

Department of Management Studiesin partial fulfillment of the

Post Graduate Diploma In Management

Under the Guidance of

DR.M APPALA RAJU

by

SONY SAJU GEORGE

BATCH XVII FK 1683

SCMS COCHIN

SCMS CAMPUS, PRATHAP NAGAR, MUTTOM, ALUVA, COCHIN-06.

September 2009

S C M SS C M SS C M S


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DECLARATION

I, the undersigned, hereby declare that this project report entitledComparative Analysis of Active and Passive Strategy in MutualFunds has been written and submitted under the guidance ofDr. MAppala Raju and is my original work.

I understand that detection of any copying is liable to be punishedin any way the school deems fit.

DATE: 5/10/2009 SONY SAJU GEORGE


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SCMS COCHIN

SCMS CAMPUS, PRATHAP NAGAR, MUTTOM, ALUVA, COCHIN-06.

This is to certify that the project work entitled ' Comparative

Analysis of Active and Passive Strategy in Mutual Funds' has been

carried out by Sony Saju George in partial fulfillment of his/her Post

Graduate Diploma in Management.

DATE : Dr. V. RAMAN NAIR

S C M SS C M SS C M S


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ACKNOWLEDGEMENT

First and foremost I would like to thank God Almighty for his blessings for

completing the project successfully.

Next I would like to thank JM FINNANCIAL SERVICES PVT LTD for

providing me the opportunity to do the project.

I express my deep gratitude to Mr. Prashanth Upadhyaya K, Senior

Associate, JM FINANCIAL SERVICES PVT LTD, who guided me throughout

the course of the project with valuable source of inspiration, guidance and advices

throughout the course of project.

I am extremely thankful to Mr. Thilak V, Associate, Equity Broking Group,

JM FINANCIAL SERVICES, for providing me with great exposure to stock

markets he gave throughout the period of project.

I am also thankful to Dr. M Appala Raju , Faculty Guide, SCMS-COCHIN,

for his regular and timely guidance, advices and suggestions for completing this

project successfully.

I would also like to express my sincere thanks to SCMS-COCHIN for

providing me the opportunity to do this project.


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EXECUTIVE SUMMARY

Active and Passive strategies are two styles of fund management in mutual fund.

Active fund management strategy focuses on outperforming the benchmark index

by delivering returns more than the index, Whereas Passive strategy aims at

delivering returns in line with the index.

The objectives of the study are to make a comparative analysis between active and

passive management style with regard to mutual funds, the pros and corns of each

style were studied to draw a conclusion as to which one is the best in a long term

perspective. The main aim is to increase the returns of any investors by reducing

the expenses involved.

For the purpose of study, returns generated by eight active and four passive funds

where compared with the nifty index over a period of 5 years, 3 years and 1 year

period and it was found that returns generated by passive funds was more than the

active funds on a long term perspective. Passive funds generated returns in line

with the index returns since they are based on an underlying index.

The study of shows that passive funds have advantages over active funds like more

returns, lesser risk, lesser taxes and expenses and consistency in delivering return while

considering a long term investment as compared to active fund which is purely based on

luck factor for which they charge huge expenses and taxes for management of those

funds.


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CHAPTER I

INTRODUCTION AND THEORETICAL BACKGROUND

OF THE STUDY

Mutual Fund is a vehicle to pool money from investors and invests in a diversified

portfolio. 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 appreciations realized are shared by its unit holders in

proportion to the number of units owned by them. Thus a Mutual Fund is the most

suitable investment for the common man as it offers an opportunity to invest in a

diversified, professionally managed basket of securities at a relatively low cost.The mutual fund investments have many advantages like risk diversification,

portfolio diversification, professional management, reduction in transaction cost,

liquidity and safety.

Operation of Mutual Fund:


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TYPES OF MUTUAL FUND SCHEMES:

By Structure:

Open Ended Schemes Close ended schemes

Interval Schemes

By Investment Objective:

Growth Schemes

Income Schemes

Balanced Schemes Money Market Schemes

Other Schemes:

Tax Saving Schemes

Special Schemes:

Index Schemes

Sector Specific Schemes

The Mutual Funds are managed by professional fund managers. The fund

managers adopt a particular style or strategy of fund management. The two types

of fund management strategies are Active and Passive styles of fund management.

The problem faced by mutual fund managers is to choose which style of

management to adopt for maximizing returns for their investors, and the problem

facing investors is to choose which type of funds they should invest whether active


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funds or passive funds depending upon several parameters like the income,

savings, returns, risk etc.

ACTIVE FUND MANAGEMENT

Active fund management is best described as an attempt to apply human

intelligence to find good deals in financial markets. Active managers try to pick

attractive stocks, bonds, mutual funds, time when to move into or out of the

markets with options futures and other derivatives. Their objective is to make

profit and try to achieve more return than the market return or rather the index

return. Active managers attempt to beat a particular market or asset class by

selecting the better securities and avoiding the losers. They believe that their

knowledge and experience will lead them to better than average investmentreturns, justifying higher compensations.

Based on classification of shares with different characteristics, active investment

managers construct different portfolios. Two basic investment styles prevalent

among the mutual funds are Growth Investing and Value Investing.

Growth Investment StyleThe primary objective of equity investment is to obtain capital appreciation.

However the different types of shares would tend to give different returns. Thus,

cyclical stocks will appreciate during economic up-cycles. Growth shares will

appreciate over the longer term if the investment managers assessment of the

sector proves right. There are funds that avoid the cyclical stocks in their

portfolios, and funds that prefer to invest only in growth stocks for long-term

appreciation. A growth manager looks for companies that are expected to give

above-average earnings growth, where the manager feels that earnings prospect

and, therefore, the stock prices in future will be even higher. Identifying such

growth sectors is the challenge before growth the growth investment manager.


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Growth shares are more risky and, therefore, commensurate with the risk profile

they may be expected to offer greater returns over long investment horizons.

Value Investment StyleValue manager looks to buy companies that they believe are currently undervalued

in the market, but whose worth they estimate will be recognized in the market

valuations eventually. The value manager seeks to cash in on the capital

appreciation in future by selling shares of companies as and when the unlocking

of value takes place. Thus an undervalued company may eventually be taken over

or merged with another company, or where a PSU may be privatized, or a

company may effect a buy-back of its shares. In all these instances, the value ofcompanys shares will go up at that point, or simply when the market catches a

fancy to the undervalued company.

Active portfolio requires detailed research of stocks traded in the market. The

techniques used for research are Fundamental Analysis, Technical Analysis and

Quantitative Analysis.

Active management allows managers the managers to exploit inefficiencies in the

global market to potentially achieve superior returns. Active management gives

more return than passive management but the returns are inconsistent and

investing in active funds is highly risky. The cost and expenses involved in active

management is very high as compared to passive management and the net returns

after tax and other expenses are very low for active funds. Capital gains tax is

charged on an investors return from active funds which erodes the returns

available to the investor. It is also challenging task to identify quality managers.

These are the main problems faced by adopting an Active management style.

PASSIVE FUND MANAGEMENT


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Mutual funds which track an index and delivers returns equal to the return from

that index are called Passive Funds. Even though the style of investing is called

passive fund manager has to make some decisions. For example, he can purchase

all of the securities forming part of the index in the same proportion as their sharein the index. Alternatively if the index stocks are too many, he can purchase a

statistically representative sample of stocks whose combined total return will

closely approximate that of the index. The choice of this sample is important and

can require some amount of research into the behavior of index stocks. Similarly,

the fund manager has to rebalance the portfolio to remain in line with the changes

in the index composition. Finally the fund manager has to keep the fund expenses

as low as possible, so that investors get returns close to the index return. Theinvestment style is passive only in the sense that the fund manager does not have

to go through the process of stock selection.

The merits of investing in Passive funds are:

Capital gain tax is low compared to active funds.

Less expensive to operate.

Provides higher certainty of getting market rate of return.

Most investor can easily understand passive management.

The demerits of passive management are:

It forces to hold bad securities with the good ones.

Most index funds are capital weighted, meaning their results are heavily

dependent upon the return of their top holdings. Performance will be dictated solely by the market with no managerial

control exercised during turbulent or largely negative return periods.


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Considering both the pros and cons of Active and Passive fund management the

investor has to select the investment style he needs to adopt based on his financial

objectives and other parameters.

CHAPTER II

RESEARCH METHODOLOGY

Rationale of the project:

The project is aimed at giving an insight about the mutual fund management styles

including active and passive fund management styles and studies the pros and cons

of each style of management. The various factors being considered whilefollowing each style and the benefits and risks involved by following each styles

of fund management. The project also provides adequate information on the

factors which guides an investor in choosing each style depending on his financial

objective. The study will give a clear picture of the management styles through a

wider spectrum.

Objectives of the study:Main Objective:

To study the ways to maximize the net returns available for an investor by

reducing the fees and expenses including taxes involved in the investment.

To provide the investor best fund management strategy based on his/her

financial objectives.

Specific Objective:

Factors which guide investors in adopting each styles.


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The Sample consist of retail investors being identified and based on factors like

type of funds they invest, management styles they follow, the investment

objectives, risk and return from the investments.

Sample size:

The sample size selected for the study is 100. The sample selected comprises of

investors in mutual funds

Data Collection:

Data collection method for this study includes both qualitative and quantitativedata. The data is collected from both primary and secondary sources. Tools like

questionnaires; interview-schedules etc are used for data collection.

Data Analysis:

The data analysis technique used for the study is theoretical case analysis model

and with the use of mathematical and statistical tools.

Limitations of the Study:

The study is limited to the city of Bangalore and the number of respondents

being considered is 100 which is limited to draw clear cut conclusions.

Time for conducting the survey was limited.

Some of the respondents were not interested to participate in the survey and

some did not respond to certain questions.


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CHAPTER III

PROFILES

MUTUAL FUND INDUSTRY PROFILE

Mutual funds had their origin in U.S.A. The first mutual fund company in the

U.S.A is the Massachusetts Investors Trust established in 1924. Mutual Fund

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

initiative of Reserve Bank of India. The objective was to attract the small investors

and introduce them to market investments. Since then history of mutual funds inIndia can be divided into six distinct phases.

Phase 1: 1964-87: Growth of Unit Trust of India

In 1963, UTI was established by an Act of Parliament. As it was only entity

offering mutual funds in India, it was monopoly during the period. The first

scheme launched by UTI was Unit Scheme 1964 (US-64). They launched several

schemes like ULIP (Unit Linked Insurance Plan) in 1971, Childrens Gift GrowthFund (1986), Mastershare (1987).

Phase 2: 1987-1993: Entry of Public Sector Funds


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1987 marked the entry of public sector mutual funds. With the opening up of

economy, many public sector banks and financial institutions were allowed to

establish mutual funds. State Bank of India established the non-UTI mutual fund

in 1987. This was followed by Canbank Mutual Fund, LIC Mutual Fund etc.

Phase 3: 1993-1996: Emergence of Private Fund

Private players were allowed to set up mutual funds in India. Kothari Pioneer was

the first private sector mutual fund. During 1993-1994, five private sector funds

launched their schemes followed by six others in 1994-1995.

Phase 4: 1996-1999: Growth and SEBI Regulation

In 1996 SEBI Mutual Fund Regulations was developed. SEBI and AMFI launched

Investor Awareness Programmes aimed at educating the investor about investingthrough mutual funds.

Phase 5: 1995-2004: Emergence of large and Uniform Industry

In 2003 UTI Act was repealed and it adopted same structure as any other funds in

India. The year marked the creation of a level playing field for all mutual funds

operating in India. The total Asset under Management (AUM) rose to 150,000

crores.

Phase 6: From 2004 onwards: Consolidation andGrowth


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The industry witnessed a spate of mergers and acquisitions and the entry of

international players into India. These led to consolidation and growth in the

mutual fund industry.

The major players in Indian mutual fund industry are UTI, Benchmark Mutual

Fund, Birla Mutual Fund, BOB Mutual Fund, Canbank Mutual Fund, DSP Merrill

Lynch Mutual Fund, Fidelity Mutual Fund, Franklin Templeton Investments,

HDFC Mutual Fund, HSBC Mutual Fund, ING Vysya Mutual Fund, JM Financial

Mutual Fund, Kotak Mahindra Mutual Fund, LIC Mutual Fund, PRINCIPAL

Mutual Fund, Prudential ICICI Mutual Fund, Reliance Mutual Fund, Sahara

Mutual Fund, SBI Mutual Fund, Tata Mutual Fund.

COMPANY PROFILE

JM FINANCIAL GROUP

JM financial is an integrated financial services group providing a wide range of

services to different clients which includes corporations, financial institutions,

high net-worth individuals and retail investors.

JM Financial Limited, the flagship listed company of the Group, is led by the

Chairman & Managing Director , Mr. Nimesh Kampani and having its registered

head office in Mumbai. The company was incorporated in the year 1972 and in the

year 1973 the company commenced its business. The group is listed in both the

exchanges the BSE and NSE. The businesses of the group includes investment

banking, institutional equity sales, trading, research and broking, private and

corporate wealth management, equity broking, portfolio management, asset

management, commodity broking, NBFC (Non Banking Finance Company)

activities, private equity and asset reconstruction. The products offered by the


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company includes Public Issues, Equity and Derivatives, Portfolio Management

Services (PMS), Depository Services, Mutual Funds, Fixed Deposits, Bonds and

Debentures .Each businesses of the group is divided into each separate companies

or entities and its functioning is independent from the holding company. Thecompany had a joint venture with Morgan Stanley in the ratio 51:49 in Domestic

business and 49:51 in the International business from 1999-2007. The clients of

the group includes HDFC Bank, Standard Chartered , ICICI group, Aditya Birla,

WIPRO, Reliance, Fortis, Idea, TATA, Suzlon, Temasek Holdings, Wockhardt

etc.

VISION

To be the most trusted partner for every stakeholder in the financial world.

JM FINANCIAL SERVICES PRIVATE LIMITED

JM Financial Services Private LTD is organized in three main divisions, wealth

Management Group, Equity Brokerage Group and Independent Financial Advisor

Group. The group provides financial products to meet individual client needs, both

short-term and long-term.

The company is among the largest distributors of third party products including

mutual funds, and has more than 60 offices in 31 cities across India.

BUSINESS SEGMENTS

WEALTH MANAGEMENT GROUP


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Experts come together to offer the clients a world of exclusive opportunities to

grow their wealth by tapping in our superior market knowledge and expertise. The

Wealth Management Group consists of two segments:

Private Wealth Group & Corporate Wealth Group

PRIVATE WEALTH GROUP

Private Wealth Group (PWG) is a personalized investment advisory service for

high net-worth individuals with an investible surplus of USD 1mn (Rs.5 crore)

CORPORATE WEALTH GROUP

This group provides research-based investment advice to Corporate Treasuriesacross a wide range of financial products to protect and enhance investors wealth

with a client centric approach.

Core competency of the group is to offer value-added services with the help of

research capabilities & capital market expertise. The Corporate Wealth Group

caters to large corporate, small & medium size enterprises and banks &

institutions.

EQUITY BROKERAGE GROUP

The Equity Brokerage Group (EBG) offers equity trading and research based

equity advisory services to high net-worth individuals, retail clients and corporate.

The advisory team specializes in generating investment worthy ideas or portfolio

picks and trading opportunities depending on the clients risk appetite and

investment horizon.

INDEPENDENT FINANCIAL ADVISOR GROUP

JM Financial Services has one of the largest network for distribution of financial

products to retail investors through Independent Financial Advisors (IFAs).


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JM Financial Groups expertise in capital markets and strong investment banking

franchise help us in launching public issues of companies with strong

fundamentals & credible promoter background for generating wealth for itsclients.

JM FINANCIAL BUSINESS AVENUES

Investment Banking

JM Financial Consultants Private Limited, the JM Financial groups Investment

Banking arm, is one of Indias most respected domestic investment banks. It

provides a wide range of services like raising capital, mergers, acquisitions,

restructuring, financial advisory and private equity to a diversified client base of

Indian corporate in the domestic and international capital markets. The Group haspioneered several innovations in the Indian capital markets in the areas of capital

structuring, financial instruments and marketing strategies. It has made a

substantial contribution to the overall development of the Indian capital markets

and has played a vital role in mergers and acquisitions in India.

Commodity Broking

JM Financial CommtradeLimited, the commodities trading business of the Group,

provides advice to clients on bullion, base metals, crude and other soft

commodities. JM Financial Commtrade Limited is a member of MCX and

NCDEX.


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Non Banking Financial Products

JM Financial Products Private Limited is a non-deposit accepting non-banking

finance company (NBFC) registered with the Reserve Bank of India. They are

engaged in borrowing and lending activities, including Loan against Securities andIPO funding. It has the highest short-term credit rating of P1+ from CRISIL.

Asset Management

JM Financial Asset Management Private Limited, JM Financial groups asset

management company for its mutual fund business, is one of Indias oldest private

sector mutual fund houses. It offers a range of 30 products across the entire risk-

return spectrum. The group has won several awards and honours from CRISIL,

ICRA, CNBC TV-18 etc.

Private Equity

JM Financial Investment Managers Limitedis the asset management company for

the private equity fund business of JM Financial group.

JM Financial India Fund is a broad based, multi-sector US$ 225 million fund,

which seeks to invest in dynamic, fast growing, unlisted domestic companies

looking for growth capital. The Fund, whose focus sectors include Retail/FMCG,Pharmaceuticals/ Healthcare, Manufacturing, Financial Services, IT/BPO services,

Logistics and Education etc.

Asset Reconstruction

JM Financial Asset Reconstruction Company Private Limited is the asset

reconstruction and securitization business of the JM Financial Group. The

company focuses on acquisition of non-performing and distressed assets from

banks and financial institutions.

Leverage and Financing


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Leverage and financing services of JM includes IPO Funding, Loan against

Shares, Margin Funding, ESOP Funding, Promoter Funding.

Real Estate FundJM Financial groups Infinite India Investment Management, a 50:50 joint venture

with SRS Fund, is among the largest dedicated real estate

investment management firms in India with plans to invest $400 million, primarily

in the residential, commercial and retail sectors.

CHAPTER IV

ANALYSIS AND INTERPRETATION OF DATA

HYPOTHESIS TESTING

1. Majority of the investors are not aware of the expenses

Null Hypothesis:

Majority of the investors are not aware of the expenses

Null Hypothesis: H0: 0.60

Alternate Hypothesis: H1: > 0.60 (One Tailed test)


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Significance Level: 5% (0.05)

= (1-)/n

= .6872

z = 1.55-0.60/0.6872 = 1.3824

Calculated value = 1.3824

Table value = 1.645 (Value corresponding to 0.450 in Normal distribution

curve)

Calculated Value < Table Value, Hence H0is accepted.

Therefore we can conclude that majority of the investors are not aware of the

expenses involved in mutual fund investments. Awareness about expenses

plays a crucial role in selecting a mutual fund since the expenses have a direct

effect on the net returns.

1 0 0 0 1 .5 5 0 0 1 .0 0 0 0 1 .0 0 . 6 8 7 2 . 4 7 2 2 2 . 0 0E x p e n s e s

V a l id M i s s i n g

N

M e a n M e d i a n M o d e

S td .

D e via tio nV a r ia n c e R a n g e

S t a t i s t i c s

Table: 4-A


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above 3%

2%-3%

0%-2%

Fig: 4.1

56 56 .0 5 6.0 56.0

33 33 .0 3 3.0 89.0

11 11 .0 1 1.0 100 .0

100 1 00.0 1 00 .0

100 1 00.0

0%-2%

2%-3%

above 3%

Tota l

Valid

To ta l

F requency Percent

Valid

Percent

Cumulat ive

Percent

Ex p e n s e s

Table: 4-B

From the frequency distribution table and the graphical representation shows that

the percentage expenses charged by mutual funds are 56% for 0%-2% category,

33% for 2%-3% category and 11% for above 3% category.


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same sector or different sectors so that the risk is minimized by diversifying

the investments.

Returns

Diversified Portfoli

Professional Managem

Risk Diversif ication

Fig: 4.2

100 0 2 .8600 3 .0000 3 .00 1 .0733 1 .1519 3 .00m f

investments

Va lid M iss in g

N

M ean M edian M ode

Std.

Dev ia tion V a r ianc e Range

Statistics

Table: 4-C


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18 18.0 18.0 18.0

11 11.0 11.0 29.0

38 38.0 38.0 67.0

33 33.0 33.0 100.0

100 100.0 100.0

100 100.0

Risk

Diversification

Professional

Management

Diversified

Portfolio

Returns

Total

Valid

Total

Frequency Percent

Valid

Percent

Cumulative

Percent

mf investments

Table: 4-D

From the table we can interpret that 18% of investors invest in mutual funds with

the objective of risk diversification, 11% of the investors choose mutual fund

investments because of professional management, the majority of the respondents

choose mutual fund investments because of diversified portfolio and 33% of

respondents prefer investment in mutual funds with the objective of high returns.

3.Active funds are consistent in the long term

Null Hypothesis:

Most of the active funds are consistent in the long term





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= (1-)/n

= .6890

z = 1.5000 -0.30/.6890


Table value= 1.645 (Value corresponding to 0.450 in Normal distribution

curve)

Calculated Value > Table Value, Hence H0 is rejected.

Therefore we can conclude that active funds are inconsistent in the long term.

i.e., the active funds return may or may not be more in the short term but when

we are looking for a long term investment perspective we can find that the

returns generated by passive funds are more than the active funds.

1 0 0 0 1 .5 0 1 .0 0 1 .6 9 .47cons is tency

V a lid M is sin g

N

M e an M e dia n M o de

Std .

Devia t ion Var iance

Sta t is t ics

Table: 4-E


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very c onsistent

consistent

less consistent

Fig: 4.3

61 61.0 61.0 61.0

28 28.0 28.0 89.0

11 11.0 11.0 100.0

100 100.0 100.0

100 100.0

lessconsistent

consistent

very

consistent

Total

Valid

Total

Frequency Percent

Valid

Percent

Cumulative

Percent

consistency

Table: 4-F

From the table we can find that out of the total of 100 respondents, 61% of the

respondents are of the opinion that active funds are less consistent, 28% considers

active funds being consistent and 11% of respondents believe the active funds are


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very consistent. Therefore from the data collected we can conclude that most of

the respondents consider active funds as being less consistent in nature.

4.In the long run the returns generated by passive fund is less than active

fund returns

Null Hypothesis

Majority of the investors is of the opinion that returns generated by passive

fund are less than active fund returns.




= (1-)/n

= 1.1322

z = 2.53-0.50/1.1322 = 1.7924



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Table value= 1.7924 (Value corresponding to 0.450 in Normal distribution

curve)

Calculated Value > Table Value, Hence H0 is rejected.

Therefore we can conclude that returns generated by passive funds are more

than active fund returns on a long term basis. While considering the net returns

after taxes and other expenses returns generated by passive funds are more than

active funds. Passive funds are safer avenue since they make investment based

on an underlying index.

1 0 0 0 2 . 5 3 0 0 3 .0 0 0 0 3 . 0 0 1 .1 3 2 2 1 .2 8 1 9 3 .0 0p a s s iv e

s a fe r

V a l id M is s i n gN

M e a n M e d i a n M o d eS td .

D e via tio n V a r ia n c e R a n g e

S ta t is t i c s


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Less risky

Net returns is more

Lesser expense and t

Returns in line w ith

Fig: 4.4

30 30.0 30.0 30.0

8 8.0 8.0 38.0

41 41.0 41.0 79.0

21 21.0 21.0 100.0

100 100.0 100.0

100 100.0

Returns inline with

index

Lesser

expense

and taxes

Net

returns is

more

Less risky

Total

Valid

Total

Frequency Percent

Valid

Percent

Cumulative

Percent

passive safer

Table: 4-G

By analyzing why passive fund is considered safer to invest, we find that 30% of

the respondents choose passive funds since they deliver returns in line with the


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index, 8% of the respondents choose because of the lesser expenses and taxes,

41% of investors select passive funds due to the net returns after tax and expenses

is more as compared to other funds and 21% of respondents feel that passive funds

are safer because they are less risky in nature.

ANNUAL HOUSEHOLD INCOME:

Anuual Household Incom

0

5

10

15

20

25

30

35

40

45

Upto 2 lacs 3 lacs - 5 lacs 6 lacs - 10 lacs Above 10 lacs

Annual household incom

PercentageofInvestors>

Percentage of investor

Fig: 4.5

From the graph we can find that 5% of the investors surveyed has annual

household income up to 2 lacs, 37% has annual household income of 3 lacs 5

lacs, 40% of investors has annual household income of 6 lacs 10 lacs and 18% of

investors belong to above 10 lacs annual household income category.

SELECTION OF A FUND MANAGEMENT STYLE:


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29 29.0 29.0 29.0

37 37.0 37.0 66.0

19 19.0 19.0 85.0

15 15.0 15.0 100.0

100 100.0 100.0

100 100.0

cost

consistency

Risk level

Past

Perfomance

Total

Valid

Total

Frequency Percent

Valid

Percent

Cumulative

Percent

Selection of style

Table: 4-H

While evaluating the parameters based on which a fund management style depends

we can find that majority of the investors choose a fund management style based

on the consistency of delivering return. 37% of the investors feel consistency as

the main criteria for the selection of a fund management style, 29% of the

investors give importance to the cost aspect, 19% of the investors consider risk

level as an important factor and 15% of the investors considers past performance

as an evaluation criteria.


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PRIMARY INVESTMENT OBJECTIVE:

19%17%

22%

41%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Retirement

Planning

Education of

Children

Regular Income Wealth

Creation

Series1

Fig: 4.6

19 19.0 19.0 19.0

17 17.0 17.0 36.0

22 22.0 22.0 58.0

41 41.0 41.0 99.0

1 1.0 1.0 100.0

100 100.0 100.0

100 100.0

Retirement

Planning

Supporting

Future

Education

of Children

Getting

Regular

Income

Creation

of Wealth

5.00

Total

Valid

Total

Frequency Percent

Valid

Percent

Cumulative

Percent

Primary investment objective

Table: 4-I


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While considering the primary investment objective of an investor it was found

out that majority of the investors i.e., 41% of the investors invested in mutual fund

with the primary objective as wealth creation. Wealth Creation is a long term

financial goal of an investor therefore they should increase the holding period oftheir investments to create wealth. 22% of the investors have chosen mutual fund

investments with objective of getting regular income. 17% of the investors have

education of their children as their primary investment objective. Retirement

planning is also a long term investment objective, they should plan their

investments so that they have adequate amount with them after retirement, among

the respondents surveyed 19% investors have retirement planning as their primary

investment objective.

SAVINGS LEVEL OF INVESTORS:

0%

6%

30%

38%

26%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Below 5% 5%-10% 10%-15% 15%-20% Above 20%

Savings Percenta

Percentag

Fig: 4.7


37/76

On analyzing the savings pattern of the investors we can find that investors having

savings below 5% is nil, 6% of the investors have 5%-10% of their income as

savings, 30% of the investors have savings in the range of 10%-15%., 38% of the

investors have savings between 15%-20% and 26% of the investors have savingsof above 20%. The increase in savings of the people has been mainly due to their

increasing awareness about investment options and thereby making the surplus

funds invested in the right avenue to satisfy their investment objectives.

SELECTION OF A PARTICULAR MUTUAL FUND:

Selection of a Particular Mutual Fund

10%

21%

6%

33%30%

0%5%

10%

15%20%

25%30%

35%

Efficient

Management

LessRisk

Lesser

Expenses

andTaxes

MoreReturn

Investment

Objective

Factors>

Percentage>

Percentage

Fig: 4.8

Selection of a particular mutual fund is based on several parameters like efficient

management, less risk, lesser expenses and taxes, more returns and investment

objective.

From the graph we can interpret that 10% of the investors chose a particular

mutual fund because of efficient management, 21% selected a particular mutual

fund because of less risk involved in investment, 6% of investors has chosen


38/76

because of lesser expenses and taxes, Majority of the investors i.e., 33% select on

the basis of more returns compared to other funds and 30% of the investors select

a particular fund based on their investment objective.

REINVESTMENT OF EARNINGS:

Reinvestment of Earning

6%

12%

26%

30%

24%

2%

Nil

0% - 20%

20% - 40%

40% - 60%

60% - 80%

80% - 100%

Fig: 4.9

Reinvestment of earnings is an important factor being considered while making

investments. From the study conducted it was found that most of the investors do

reinvest their earnings in order to multiply their returns. Among the category of

investors being surveyed 30% of the investors reinvest 40%-60% of their returns,

26% of the investors reinvest 20%-30% of their investments, 12% of the investors

reinvest 0%-20% of their returns from investments, 24% of the investors reinvest

60%-80% of their investment, 2% of the investor reinvest 80%-100% of theirinvestments and 6% of the investors does not reinvest their earnings at all. The

power of compounding the returns from an investment can be enjoyed by

reinvesting the earnings.


39/76

HIGHER COST OF ACTIVE FUNDS:

43 43.0 43.0 43.0

22 22.0 22.0 65.0

35 35.0 35.0 100.0

100 100.0 100.0

100 100.0

Continuous

Tracking of

Portfolio

More time

and

expenses

towards

tracking

portfolio

More

expenses

incurred for

outperforming

the benchmark

index

Total

Valid

Total

Frequency Percent

Valid

Percent

Cumulative

Percent

Higher Cost of Active Funds

Table: 4-J

From the table we can interpret that majority of the investors attribute higher cost

of active funds due to the factor of continuous tracking of portfolio, i.e., 43% of

investors considers continuous tracking of portfolio as the reason for higher cost of

active funds, 22% of investors considers more time and expenses towards tracking

portfolio as the factor responsible for higher cost and 35% of investors attribute

higher cost of active funds because of more expenses incurred for outperformingthe benchmark index.


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PERCENTAGE DEVIATIONS IN RETURN:

54 54.0 54.0 54.0

28 28.0 28.0 82.0

17 17.0 17.0 99.0

1 1.0 1.0 100.0

100 100.0 100.0

100 100.0

0%-2%

2%-3%

3%-6%

above 6%

Total

Valid

Total

Frequency PercentValid

PercentCumulative

Percent

Deviation

Table: 4-K

From the table we can interpret that 54% of the investors experience 0%-2%

deviations from the indicated returns, 28% of the investors experience 2%-3%

deviations, 17% of investors experience 3%-6% deviations and 1% of investors

experience above 6% deviation in returns.


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ANNUAL INCOME AND CONSISTENCY OF ANNUAL INCOME:

Count

4 4

28 9 37

17 23 40

5 13 1 19

54 45 1 100

upto 2 lakhs

3

lakhs-5lakh

6 lakhs-10

lakhs

above 10

lakhs

Annual

income

Total

Next 3

years

Next 6

years

Next 10

years

Consistency of incom e

Total

Annual income * Consistency of income Crosstabulation

Table: 4-L

From the table we can interpret that out of 4 investors having income upto 2 lakhs

4 of their income level is consistent for next 3 years, among 37 investors having

income level in the range 3 lakhs-5 lakhs, 28 of their income is consistent for a

period of next 3 years and 9 of their income is consistent for next 6 years.Investors having annual income between 6 lakhs-10 lakhs are 40, out of which 17

investors income is consistent for next 3 years and 23 investors income is

consistent for next 6 years. The investors whose income is above 10 lakhs are 19


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out of which the number of people whose income is consistent for next 3 years is 5

and next 6 years is 13.

ACTIVE FUNDS PERFORM BETTER THAN PASSIVE FUNDS:

36 36.0 36.0 36.0

5 5.0 5.0 41.0

41 41.0 41.0 82.0

18 18.0 18.0 100.0

100 100.0 100.0

100 100.0

Skill in

Picking Up

Stocks

Professional

Management

Luck Factor

Timely

Rebalancing

of PortfolioTotal

Valid

Total

Frequency Percent

Valid

Percent

Cumulative

Percent

Reasons fo r Better performance o f Active Fund s

Table: 4-M

From the table we can find that 36 % of investors consider skill in picking up

stocks as the reason for better performance of active funds, 5% consider

professional management as the reason for better performance, 41% whichcomprises of the majority attribute the reason for better performance is the luck

factor and 18% consider rebalancing of portfolio the reason for better performance

of active funds.


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Reasons For Better Performance of Active Funds

36%

5%41%

18%

Skill in Picking Stocks

Professional Management

Luck Factor

Timely Rebalancing of Portfolio

Fig: 4.10

PRICE FACTOR:

Price Factor PercentageLeast Important 0Less Important 3Moderately

Important 26Important 54Extremely

Important 17

Table: 4-N


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0

10

20

30

40

50

60

Least

Important

Less

Important

Moderately

Important

Important Ex tremely

Important

Importance o f Price F

Percenta

Fig: 4.11

Price factor is a very important criterion while considering investment in mutual

funds. The price factor of a fund is important while considering the net returns. If

the fund charges more price towards expenses and taxes it reduces the net returns

available to the investors. From the graphical representation we can interpret that

54% of the investors consider price factor as important, for 26% of the investors

price factor is moderately important. For 17% of the investors price factor is

extremely important, 3% of investors considers price factor as less important and

0% of investors considers price factor as least important.


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PRIMARY SOURCES OF KNOWLEDGE ON MUTUAL FUNDS

MUTUAL FUND ADVISORS:

54 54 .0 54 .0 54 .0

33 33 .0 33 .0 87 .0

13 13 .0 13 .0 100 .0

100 100 .0 100 .0

100 100 .0

Mos t

Inf luential

Inf luential

ModeratelyInf luential

Tota l

Valid

Tota l

F requency Percent

Valid

Percent

Cumulat ive

Percent

M utual Fu nd Ad visors

Table: 4-O

From the data we can interpret that 54% of the investors considers advice frommutual fund advisors as most influential source of primary information, 33% of

investors considers advice from mutual fund advisors as influential source of

primary information, 13% of investors considers advice from mutual fund advisors

as moderately influential, 0% of the investors considers advice from mutual fund

advisors as less influential and least influential.


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0

10

20

30

40

50

60

Most

Influential

Influential Moderately

Influential

Less

Influential

Least

Influential

Mutual Fund Adv is

Percentag

Table: 4.12

TELIVISION:

16 16.0 16.0 16.0

26 26.0 26.0 42.0

40 40.0 40.0 82.0

14 14.0 14.0 96.0

4 4.0 4.0 100.0

100 100.0 100.0

100 100.0

Most

Influential

Influential

Moderately

Influential

Less

Influential

Least

InfluentialTotal

Valid

Total

Frequency Percent

Valid

Percent

Cumulative

Percent

Telivision

Table: 4-P


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From the table we can interpret that television is the most influential source for

16% of the investors, its influential for 26% of the investors, 40% of investors

considers television as moderately influential, television is less influential for 14%

of the investors and its least influential for 4% of the investors.

Telivision

16%

26%

40%

14%

4%

Most Influential

Influential

Moderately Influential

Less Influential

Least Influential

Fig: 4.13


48/76

NEWSPAPER:

30 30.0 30.0 30.0

40 40.0 40.0 70.0

28 28.0 28.0 98.0

2 2.0 2.0 100.0

100 100.0 100.0

100 100.0

Most

Influential

Influential

Moderately

Influential

Less

Influential

Total

Valid

Total

Frequency Percent

Valid

Percent

Cumulative

Percent

Newspaper

Table: 4-Q

From the table we can find that 30% of the investors consider newspaper as most

influential source of information, 40% of investors consider newspaper as an

influential source of information, 28% considers it as moderately influential

source of information, 2% considers newspaper as less influential source of

information and 0% considers it as least influential source of information.


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0

5

1 0

1 5

2 0

2 5

3 0

3 5

4 0

M o s t In flu e n t ia lIn f lu e n t ia l M o d e ra te ly

In flu e n tia l

L e s s In flu e n t ia lL e a s t In flu e n t ia l

N e w s p a

P e rc e n t

Fig: 4.14

INTERNET:

43 43.0 43.0 43.0

38 38.0 38.0 81.0

15 15.0 15.0 96.0

3 3.0 3.0 99.0

1 1.0 1.0 100.0

100 100.0 100.0

100 100.0

Most

Influential

Influential

Moderately

Influential

LessInfluential

Least

Influential

Total

Valid

Total

Frequency Percent

Valid

Percent

Cumulative

Percent

Internet


50/76


51/76

JOURNALS/ARTICLES:

Table: 4-S

From the table we can interpret that journals/articles is most influential for 9% of

investors, 23% of the investor consider it to be influential, 43% of investors

consider it to be moderately influential source of knowledge, 19% of the investors

have it as less influential source of knowledge and 6% of investors has journals/

articles as least influential source of knowledge.

9 9.0 9.0 9.0

23 23.0 23.0 32.0

43 43.0 43.0 75.0

19 19.0 19.0 94.0

6 6.0 6.0 100.0

100 100.0 100.0

100 100.0

MostInfluential

Influential

Moderately

Influential

Less

Influential

Least

Influential

Total

Valid

Total

Frequency Percent

Valid

Percent

Cumulative

Percent

Journals/Articles


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53/76

25 25.0 25.0 25.0

25 25.0 25.0 50.0

25 25.0 25.0 75.0

17 17.0 17.0 92.0

8 8.0 8.0 100.0

100 100.0 100.0

100 100.0

Most

Influential

Influential

Moderately

Influential

Less

Influential

Least

Influential

Total

Valid

Total

Frequency Percent

Valid

Percent

Cumulative

Percent

Friends/Relatives

Table: 4-T

From the above table we can interpret that friends/relatives comprises 25% of

most influential source of primary knowledge of mutual funds, 25% of investors

have it as influential source, 25% of investors has it as less influential source, 17%

of investors have it as less influential source and 8% of investors have it as least

influential source.


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Friends/Relative

25%

25%25%

17%

8%

Most Influential

Influential

Moderately Influenti

Less Influential

Least Influential

Fig: 4.17

FINANCIAL GOAL DURATION:


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Financial Goal D

0

5

10

1520

25

30

35

Within 3

years

In 3 - 5

years

In 6 - 10

years

In 10 - 15

years

In more

than 15

years

Per iod

Percentage>

Percentage of Invest

Fig: 4.18

The data shows that 12% of the investors have their financial goal to be met within

3 years, 26% of the investors have their financial goal to be met in a period of 3

years 5 years, 30% of investors have their financial goal to be met within a

period of 10 years 15 years and 3% of investors have financial goal period of

more than 15 years.

TAX FACTOR:


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Tax Factor

29%

39%

32%

0%

0%

Very Important

Somewhat Important

Neutral

Somewhat Unimportant

Not at all Important

Fig: 4.19

Majority of the investors choose investments which helps them in reducing their

tax liability. So among the investors surveyed majority of them want to invest in

funds which reduce their tax liability. From the data we can find that 29% of the

investors considers tax factor as very important criteria, 32% of the investors are

neutral towards tax factor, for 39% of the investors considers tax factor is not at all

important, o% of investors considers tax factor as somewhat important and

somewhat unimportant. Therefore from the data we can see that investors

considers tax factor as either very important, neutral or not at all important.

MONTHLY INCOME :


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Monthly Income Facto

25%

39%

33%

2%

1%

Very Important

Somewhat Important

Neutral

Somewhat Unimportan

Not at all Important

Fig: 4.20

Some category of investors need returns in the form of monthly income, for that

they choose mutual fund investments giving a monthly income regularly to meet

their needs. Regular income from mutual funds is mainly required for the investors

who have retired but the monthly income factor is considered equally important

for other category of investors also. Among the investors surveyed 39% of theinvestors considers monthly income factor to be somewhat important, 33% of the

investors are neutral towards monthly income from mutual funds, 25% of the

investors considers monthly income factor to be very important criteria while

making investments, 2% of the investors considers monthly income factor to be

somewhat unimportant and only 1% of the investors surveyed considers monthly

income factor to be not at all important.

PERIOD OF HOLDING:


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We can analyze the relation between period of holding and returns using chi-

square which is show n below, for this purpose we need to have a null hypothesis.

Null Hypothesis:There is no association between the returns and period of holding.

C oun t

1 1 2

5 7 1 13

1 5 12 9 27

3 10 21 24 58

4 21 41 34 100

5%-10%

10% - 15%

15% - 20%

Above

20%

Returns

To ta l

1 year

1year -3

years

3 years -

5 years

mo re than

5 years

Per iod of Holding

To ta l

Returns * Period o f Hold ing Cross tabula t ion

Table: 4-U

9.188a

9 .420

11.000 9 .276

3.213 1 .073

100

Pearson

Chi-Square

Likelihood Ratio

Linear-by-Linear

Association

N of Valid Cases

Value df

Asymp.

Sig.

(2-sided)

Chi-Square Tests

9 cells (56.3%) have expected count less than

5. The minimumexpected count is .08.

a.

Table: 4-V


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From the table we can find that the significance level is .420 which is greater than

.05 therefore we reject the null hypothesis. Therefore we can conclude that there is

association between the period of holding and the rate of return.

ANALYSIS OF FUND PERFOMANCE

For the purpose of proving whether active or passive funds which is better for an

investor, a comparison was done by selecting eight active funds and four passive

funds. The active and passive funds selected were compared with the index.

The comparison of the active and passive fund shows that the active funds areinconsistent in delivering the returns whereas their passive counterparts were able

to deliver consistent return in line with the index. The interpretation that passive is

better than active was arrived after taking 5 years, 3 years and 1 year average

returns delivered by the funds.

Active Funds returns are purely based on luck factor in selecting the portfolio and

no fund manager is able to maintain the consistency on a long term basis. ActiveFunds may outperform passive funds in a short term period but on a long term

perspective from the analysis we can find passive is the best in terms of both risk

and reward. The fact of inconsistency in performance of active funds is clearly

depicted in the comparison of funds and it shows that no single fund maintains

their ranking consistently.

The active funds net returns after other expenses and taxes is very less as

compared to passive funds which charges a lesser rate of expenses and taxes.

Therefore on the basis of consistency of performance, risk, return we can conclude

from the table that passive funds are the best for an investor to park his money for

a mutual fund investment.


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ACTIVE FUNDS AVERAGE PERFORMANCE FOR VARIOUS TIME

PERIODS

ACTIVE FUNDS RETU RN

46.248%

-19.428%

-31.100%-40.000%

-30.000%

-20.000%

-10.000%

0.000%

10.000%

20.000%

30.000%

40.000%

50.000%

60.000%

5 YEARS 3 YEARS 1 YEAR

PERIOD

PERCENTAGE

RETURNS

ACTIVE FUNDS

Fig: 4.21

The graph shows that for the past 5 years the average return generated by active

funds is 46.25% when the index generated a return of 66.02%, for 3 years the

funds have generated an average return of -19.43% whereas the index generated a

return of -13..02% and for the past 1 year the return generated by active funds was

very low and it was -31.10% whereas the index gave a return of -36.02%.


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PASSIVE FUNDS PERFORMANCE FOR VARIOUS TIME PERIODS

Fig: 4.22

The graph shows that the average return generated by passive funds for past 5

years was 69.11% whereas the return generated by the index was 66.02%. For the

past 3 years the average return generated by passive funds was -14.42% whereas

the index generated a return of -13.02%. During the past 1 year the return

generated by active funds was -36.73% while the index generated a return of

-36.26%. From the graphs we can find that since the passive funds invest in the

underlying index the return generated by the funds are also in line with the

underlying index.

PASSIVE FUNDS RETURNS

-14.421%

-36.727%

69.112%

-60.000%

-40.000%

-20.000%

0.000%

20.000%

40.000%

60.000%

80.000%

5 YEARS 3 YEARS 1 YEAR

PERIOD

PERCENTAGERETURNS

PASSIVE FUNDS


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COMPARISON OF NIFTY RETURNS FOR VARIOUS TIME PERIODS

N IF T

-6 0-4 0

-2 0

0

2 0

4 0

6 0

8 0

N I F T Y IN

RETURNS

N IF T

N IF T Y 6 6 . 0 1 8 1 9 0 3 1 -1 3 .0 2 3 6 3 7 4 6 -3 6 .2 6 0 8 2 6 4

1 2 3

Fig: 4.23

The graph shows the return generated by nifty index for various time periods. The

index generated return of 66.018% for 5 years, -13.023% for 3 years and

-36.260% for past 1 year.


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COMPARISON OF ACTIVE AND PASSIVE FUNDS RETURN WITH

THAT OF INDEX RETURNS

Fig: 4.24

The graph shows that while taking average returns of the funds for 5, 3 and 1 year

return the returns generated by the funds are as follows:

Active Funds : -1.426%

Passive Funds : 5.987%

Nifty Index : 5.577%

Therefore we can conclude that for a long term investment period, consistency of

performance, risk and return involved passive funds are the best to invest for a

mutual fund investor.

COMPARISON OF FUNDS AVERAGE RETURNS WITH

INDEX RETURNS

5.987%5.577%

-1.426%

-2.000%

-1.000%

0.000%

1.000%

2.000%

3.000%

4.000%

5.000%

6.000%

7.000%

ACTIVE

FUNDS

PASSIVE

FUNDS

NIFTY

FUNDS

PERCENTAGERETURNS

ACTIVE FUNDS

PASSIVE FUNDS

NIFTY


64/76

Fig: 4.25

From the line graph we can see that the returns generated by active funds whenconsidering a longer period of investment is lesser than the index and the returns

generated by active funds for a short term period may or may not be greater than

the index returns, but this returns delivered by active funds is not consistent.

Comparison of Active Funds with the Index

-60

-40

-20

0

20

40

60

80

5 years 3 years 1 year

Active

Nifty


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h

Fig: 4.26

The returns generated by passive funds are in line with the underlying index whenconsidering the returns for various periods under the study. The line graph clearly

shows the overlapping of returns of passive funds and the index

Comparison of Passive Funds with the Index

-60

-40

-20

0

20

40

60

80

5 years 3 years 1 year

Passive

Nifty


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Com par ison o f Act ive And Passive Funds W i

-60

-40

-20

0

20

40

60

80

5 y ears 3 years 1 y ear

Year

AverageReturns Active

Pass iv

Nifty

Fig: 4.27

While comparing the active and passive funds average returns with the nifty index

average returns for a period of 5years, 3 years and 1 year we can interpret that the

returns delivered by active funds is more than the index only during a short termperiod whereas while considering a longer period the returns delivered by active

funds is less than the index returns. Passive funds returns are in line with the index

for both short term and long term since they are constructed on the basis of an

underlying index. The line graph clearly shows the returns generated by active and

passive funds and the nifty index.


67/76

CHAPTER V

FINDINGS AND CONCLUSIONS

The study conducted on comparative analysis of active and passive strategies in

mutual funds resulted in various findings and conclusion which are listed below:

On a long term returns generated by Passive Funds are more than Active

Funds after taking into consideration the expenses and taxes being charged

on the fund.

Passive Funds deliver returns in line with the underlying index as the

investment is made in the fund in the same proportion as it is done in the

index. The amount of deviation is very minimal as compared to the active

funds, which may result in huge deviation as a result of higher expenses

and taxes being charged mainly for the fund managers ability in designing

the active fund with his ability or skill in picking up stocks.

Active funds are inconsistent in delivering return.

Net returns of passive funds that is after all expenses exceed the returnsdelivered by the active funds.

Management fees charged by passive funds are very low since skill of a

fund manager is not applied while investing in passive funds

The level of risk is low for a passive fund as compared to active funds as

they invest in a particular index and the returns generated by the index will

be reflected in the passive fund.

Active funds are purely based on luck factor since no particular active fundhas been able to maintain the position as the one providing highest return.

The ranking of active funds varies which clearly shows the luck factor

involved in active management.


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Considering all the pros and cons of both the styles of management we can make a

conclusion that passive funds are safer while considering all the parameters like:

Net Returns

Taxes and Expenses

Less Deviations

Less Risky

Consistency


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CHAPTER VI

SUGGESTIONS AND RECOMMENDATIONS

The research was mainly carried out in order to analyze the active and passive fund

management strategies in mutual funds. The data collected and analyzed and interpreted

gave rise to following recommendations and suggestions:

An investor seeking more return than the market return or rather the index return

can opt for active management

Investors who are willing to take more risk in order to get more return can opt for

active management and can invest in active stocks.

Investors who are risk averse can choose passive management and make their

investments in passive funds since these funds invest in a particular index like the

NIFTY or SENSEX and the risk from these investments will be in line with the

market risk

Investors who seeks a return in line to market return can invest in passive funds,

since their return is in line with the index returns

Active funds returns are liable to capital gains tax, so for investors who want to

save tax or reduce the tax liability can go for passive funds as an investment

avenue.

Net returns is more after tax and other expenses is more for passive funds since

active fund charge higher rates of taxes and expenses for continuous tracking of

portfolio and the skill involved in picking stocks.

For an investor who wants to reduce the amount paid towards the cost and otherexpenses can choose passive management since the costs and expenses are

considerably low as compared to active management.


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Passive management is best suited for an investor who wants consistency in

returns. The passive management has a low tracking error and the deviation in

return as compared to the underlying index is very low or minimal.

Aggressive investor who can take the substantial risk can try his luck on active

funds, since those fund are mainly based on the luck factor.

Investors can easily track and understand the performance of passive funds since

they are comprised of stocks in the underlying index. Therefore they can track the

funds movement easily without seeking a help of experts in the field.

As per the research conducted it is evident that for a long-term investment period

objective always passive funds outperform the active funds.

The fund managers can advice their clients to invest in passive funds to be on the

safer side with good returns.


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BIBLIOGRAPHY

Book References

Anjaria, D.C .AMFI workbook. New Delhi: AMFI, Third edition, May

2006.

Sankaran, Sundaran, Indian Mutual Funds Handbook. Vision Books P,2007.

Nargundkar, Rajendra, Marketing Research, New Delhi: Tata McGraw-

Hill. Third Edition, 2008

Kothari,C.R.Research Methodology Methods and Techniques. New Delhi:

New Age International (P) Ltd.,2008

Website References

www.jmfinancial.in

www.nseindia.com

www.bluechipindia.com

www.amfiindia.com

www.valueresearchonline.com

www.ebscohost.com

www.wikepedia.com

www.investopedia.com

www.bseindia.com
http://www.jmfinancial.in/http://www.nseindia.com/http://www.bluechipindia.com/http://www.amfiindia.com/http://www.valueresearchonline.com/http://www.ebscohost.com/http://www.wikepedia.com/http://www.investopedia.com/http://www.bseindia.com/http://www.bseindia.com/http://www.jmfinancial.in/http://www.nseindia.com/http://www.bluechipindia.com/http://www.amfiindia.com/http://www.valueresearchonline.com/http://www.ebscohost.com/http://www.wikepedia.com/http://www.investopedia.com/http://www.bseindia.com/


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APPENDICES

QUESTIONNAIRE

Name:

City:

Age:

Gender: Male Female

1. What is your annual household income?

Up to 2 lacs 3 lacs- 5 lacs 6 lacs- 10 lacs Above 10 lacs

2. What is your primary investment purpose?

Retirement Planning supporting future education of children

Regular income Creation of wealth

3. For how many years do you expect your income to be consistent?

next 3 years next 6 years next 10 years next 15 years

4.What is your primary objective for investment?

Preservation of Principal Current Income Growth and Income

Conservative growth Aggressive Growth

5. What is the percentage of your savings of your total income?

Below 5% 5% - 10% 10% - 15% 15% - 20% 20% or more


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6. What aspect made you choose mutual fund investments?

Risk Diversification Professional Management Diversified Portfolio

Returns

7. What was the basis on which you choose a particular mutual fund?

Efficient Management less risk lesser expenses and taxes

More returns Investment objective

8. Which are the primary sources of your knowledge about Mutual Funds as an

investment option? Corresponding to your choices how would you rate their

influence on your final Mutual Fund purchase decision? Please rank them on a

scale of 1-5 with 1 representing minimal influence and 5 representing Strong

influence?

Most

Influential

Influential Moderately

Influential

Less

Influential

Least

Influential

Television

Internet

Newspaper

Journals/ArticlesFriends/Relatives

Mutual Fund

Advisors


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9. What is the holding period of your investments in Mutual Funds?

1 year 1 year - 3 years 3 years - 5 years More than 5 years

10. How important is fund price as a factor when considering investment in

Mutual Funds? Please tick the option you choose.

Least

Important

Less

Important

Moderately

Important

Important Extremely

Important1 2 3 4 5

11. What is the specific date when you hope to meet your financial goal?

Within 3 years.

In 3 to 5 years.

In 6 to 10 years.

In 10 to 15 years.

In more than 15 years.

12. Would you be interested to know more about Mutual Funds than what is your

current knowledge? Yes/No. If yes which aspect of mutual fund you want to

know in detail?

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13. How important is tax incentive factor in mutual fund investments?

Very important somewhat important Neutral somewhat unimportant


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Not at all important

14. How important is monthly income by mutual funds?

Very important somewhat important Neutral Somewhat unimportant

Not at all important

15. What is the percentage of returns expected through investment in each scheme

of mutual funds?

5%-10% 10%-15% 15%-20% Above 20%

16. What is the approximate percentage of expenses charged by the fund?

0%-2% 2%-3% Above-3%

17. Do you Re-invest your earnings from mutual funds? Yes/ No. If yes what

percentage of your returns you re-invest?

Below 20% 20%-40% 40%-60% 60%-80% 80%-100%

18. What are the percentage deviations you experienced while investing in a

mutual fund from the indicated returns by the fund?

0%-2% 2%- 3% 3%-6% Above 6%

19. How consistently your active funds have been able to give returns more than

the underlying index or benchmark? Less Consistent Consistent Very Consistent

20. What may be the reasons if active fund performs better than passive fund?


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Skill in picking up the stocks Professional management Luck Factor

Timely decision regarding rebalancing the portfolio

21. What could be the reason that passive fund management is considered safer? Returns in line with index Lesser Expense and taxes Net returns is more

Less Risky

22. What could be the reason for higher cost being charged for active

management?

Continuous tracking of the portfolio more time and expenses towards tracking

portfolio more expenses being incurred for outperforming the benchmark index

23. What could be the parameters based on which you choose a particular fund

management style? Please tick the options which are appropriate for you.

Cost Consistency of returns Risk level Past Performance

24. What are the specific reason/ reasons for which you choose mutual fund

investments over other avenues of investment?

final report- jm financial by sony saju george

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