final thesis mutual fund-final 21

8/9/2019 Final Thesis Mutual Fund-final 21

http://slidepdf.com/reader/full/final-thesis-mutual-fund-final-21 1/70

ABSTRACT

A mutual fund is simply a financial intermediary that allows a group of investors to pool

their money together with a predetermined investment objective. The mutual fund will

have a fund manager who is responsible for investing the pooled money into specific

securities (usually stocks or bonds). When you invest in a mutual fund, you are buying

shares (or portions) of the mutual fund and become a shareholder of the fund. Mutual

funds are one of the best investments ever created because they are very cost efficient and

very easy to invest in (you don't have to figure out which stocks or bonds to buy). By

pooling money together in a mutual fund, investors can purchase stocks or bonds withmuch lower trading costs than if they tried to do it on their own. But the biggest

advantage to mutual funds is diversification. A Mutual Fund is a trust that pools the

savings of a number of investors who share a common financial goal. The money thus

collected is then invested in capital market instruments such as shares, debentures and

other securities. The income earned through these investments and the capital

appreciation realized is shared by its unit holders in proportion to the number of units

owned by them.

1



TABLE OF CONTENT

ABSTRACT

1. INTRODUCTION

2. RESEARCH METHODOLOGY

3. LITERATURE REVIEW

4. FINDINGS AND ANALYSIS

5. RECOMMENDATIONS

6. CONCLUSION

7. REFERENCES

8. ANNEXURE

QUESTIONNAIRE

2



1. INTRODUCTION

Mutual funds have been a significant source of investment in both government and

corporate securities. It has been for decades the monopoly of the state with UTI being the

key player, with invested funds exceeding Rs.300 bn. (US$ 10 bn.). The state-owned

insurance companies also hold a portfolio of stocks. Presently, numerous mutual funds

exist, including private and foreign companies. Banks--- mainly state-owned too have

established Mutual Funds (MFs). Foreign participation in mutual funds and asset

management companies is permitted on a case by case basis. UTI, the largest mutual fund

in the country was set up by the government in 1964, to encourage small investors in theequity market. UTI has an extensive marketing network of over 35, 000 agents spread

over the country. The UTI scrips have performed relatively well in the market, as

compared to the Sensex trend. However, the same cannot be said of all mutual funds. All

MFs are allowed to apply for firm allotment in public issues. SEBI regulates the

functioning of mutual funds, and it requires that all MFs should be established as trusts

under the Indian Trusts Act. The actual fund management activity shall be conducted

from a separate asset management company (AMC). The minimum net worth of an AMC

or its affiliate must be Rs. 50 million to act as a manager in any other fund. MFs can be

penalized for defaults including non-registration and failure to observe rules set by their

AMCs. MFs dealing exclusively with money market instruments have to be registered

with RBI. All other schemes floated by MFs are required to be registered with SEBI.

EMERGENCE OF THE MUTUAL FUND INDUSTRY IN INDIA

The origin of the Indian mutual fund industry can be traced back to 1964 when the Indian

government, with a view to augment small savings within the country and to channelisethese savings to the capital markets, set up the Unit Trust of India (UTI).

The UTI was setup under a specific statute, the Unit Trust of India Act, 1963. The Unit

Trust of India launched its first open-ended equity scheme called Unit 64 in the year

1964, which turned out to be one of the most popular mutual fund schemes in the

3



country. In 1987, the government permitted other public sector banks and insurance

companies to promote mutual fund schemes. Pursuant to this relaxation, six public sector

banks and two insurance companies’ viz. Life Insurance Corporation of India and General

Insurance Corporation of India launched mutual fund schemes in the country.

Subsequently, in 1993, the Securities and Exchange Board of India (SEBI) introduced

The Securities and Exchange Board of India (Mutual Funds) Regulations, 1993, which

paved way for the entry of private sector players in the mutual fund industry. In the

period between 1963 and 1988, when the UTI was the sole player in the industry, the

assets under management grew to about Rs. 67 billion.

In the second phase, between 1988 and 1994, when public sector banks and insurance

companies were allowed to launch mutual fund schemes, the total assets in the mutual

fund industry grew to about Rs. 610 billion with the total number of schemes increasing

to 167 by the end of 1994.

The third phase of the mutual fund industry, which commenced in 1994, witnessed

exponential growth of the industry, with the advent of private players therein. Kothari

Pioneer Mutual fund was the first fund to be established by the private sector in

association with a foreign fund. As on September 30, 2002, the total assets under

management stood at Rs. 1069 billion and the total number of schemes stood at 384.

During the last three and a half decades, UTI has been a dominant player in the mutual

fund industry. The total assets under the management of the UTI as on September 30,

2002 were to the tune of Rs. 442 billion, which amount to almost 41% of the total assets

under management in the domestic mutual fund industry. UTI has witnessed some

erosion of assets pursuant to the last year’s crisis arising on account of its Unit 64

scheme, the scheme with largest amount of assets under management. This was the first

scheme launched by the UTI with a significant equity exposure and the returns of which

was not linked to the market. This resulted in a payment crisis when the stock markets

crashed which resulted in some degree of loss of investors’ confidence in UTI leading to

erosion of its assets under management.

4



This period also gave opportunity to the private players to demonstrate better returns

thereby capturing a significant market share. As by the end of September 30 2002, there

were in all 22 private sector funds (excluding UTI and funds sponsored by banks and

other government institutions) operating in India with total assets under management of

Rs. 529 billion. A list of mutual funds operating in India on September 30,2002 is

attached here to as Annexure 1.

MUTUAL FUND AND TYPES OF MUTUAL FUND

a) What is a Mutual Fund?

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

common financial goal. The money thus collected is invested by the fund manager in

different types of securities depending upon the objective of the scheme. These could

range from shares to debentures to money market instruments. The income earned

through these investments and the capital appreciation realized by the scheme is 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 portfolio at a relatively low cost. The

small savings of all the investors are put together to increase the buying power and hire a

professional manager to invest and monitor the money. Anybody with an investible

surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual

Fund scheme has a defined investment objective and strategy.

5



b) Types of Mutual Funds

This section provides descriptions of the characteristics -- such as investment objective

and potential for volatility of your investment -- of various categories of funds. These

descriptions are organized by the type of securities purchased by each fund: equities,

fixed-income, money market instruments, or some combination of these.

Organization of fund types is done to show how aggressive or conservative they are andwhat is the investment objective. Because mutual funds have specific investment

objectives such as growth of capital, safety of principal, current income or tax-exempt

income, one can select one fund or any number of different funds to help investor meet

her specific goals. In general mutual funds fall into these general categories:

1. Equity Funds invest in shares of common stocks.

2. Fixed-Income Funds invest in government or corporate securities which offer

fixed rates of return.

3. Balanced Funds invest in a combination of both stocks and bonds.

4. Money Market Funds for high stability of principal, liquidity and income.

5. Bond Funds, both tax-exempt and taxable funds to generate income.

6



6. Specialty/Sector Funds to diversify holdings within an industry.

Equity Funds

i. Aggressive Growth Funds

These funds seek maximum growth of capital with secondary emphasis on

dividend or interest income. They invest in common stocks with a high potential

for rapid growth and capital appreciation.

Because they invest in stocks which can experience wide swings up or down,

these funds have a relatively low stability of principal. They often invest in the

stocks of small emerging growth companies and generally provide low current

income because these companies usually reinvest their profits in their businesses

and pay small dividends, if any. Aggressive growth funds generally incur higher

risks than growth funds in an effort to secure more pronounced growth. These

funds may invest in a broad range of industries or concentrate on one or more

industry sectors. Some use borrowing, short-selling, options and other speculative

strategies to leverage their results.

This type of mutual fund is suitable for investors who can 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

or who must maximize current income.

ii)

Growth Funds

Generally invest in stocks for growth rather than current income. Growth funds

are more likely to invest in well-established companies where the company itself

and the industry in which it operates are thought to have good long-term growth

potential.

Growth funds provide low current income, but the investor's principal is more

stable than it would be in an aggressive growth fund. While the growth potential

may be less over the short term, many growth funds have superior long-term

7



performance records. They are less likely than aggressive growth funds to invest

in smaller companies which may provide short-term substantial gains at the risk

of substantial declines.

Although growth funds are more conservative than aggressive growth funds, theyare still relatively volatile. They are suitable for growth-oriented investors but not

investors who are unable to assume risk or who are dependent on maximizing

current income from their investments.

iii) International/Global Funds

International funds seek growth through investments in companies outside India.

Global funds seek growth by investing in securities around the world, including

India. Both provide investors with another opportunity to diversify their mutual

fund portfolio, since foreign markets do not always move in the same direction as

India.

The best way to invest abroad is through mutual funds, rather than direct

investment in a foreign security. Most investors are unfamiliar with foreign

investment practices and currencies and may not have a clear understanding of

how economic or political events can affect foreign securities. An investor in an

international mutual fund doesn't have to worry about trading practices,

recordkeeping, time zones or other laws and customs of a foreign country -- that

is all handled by the fund's money manager.

International and global funds can invest in common stocks or bonds of foreign

firms and governments. Many international funds invest in a particular country or

region of the world.

While international and global funds offer opportunities for growth and

diversification, these types of funds do carry some additional risks over domestic

funds and should be carefully evaluated and selected according to the investor's

objectives, timeframe and risk profile. Because most international and global

funds are considered to be aggressive growth funds or growth funds, investors

must be willing to assume the risk of potential loss in value in the hope of

8



achieving substantial gains. They are not suitable for investors who must conserve

their principal or maximize current income.

iv) Growth and Income Funds

Growth and income funds seek long-term growth of capital as well as current

income. The investment strategies used to reach these goals vary among funds.

Some invest in a dual portfolio consisting of growth stocks and income stocks, or

a combination of growth stocks, stocks paying high dividends, preferred stocks,

convertible securities or fixed-income securities such as corporate bonds and

money market instruments. Others may invest in growth stocks and earn current

income by selling covered call options on their portfolio stocks.

Growth and income funds have low to moderate stability of principal and

moderate potential for current income and growth. They are suitable for investors

who can assume some risk to achieve growth of capital but who also want to

maintain a moderate level of current income.

1. Fixed-Income Funds

The goal of fixed income funds is to provide high current income consistent with

the preservation of capital. Growth of capital is of secondary importance.

Income funds that invest primarily in common stocks are classified as equity

income funds. Those that invest primarily in bonds and preferred stocks are

classified as fixed-income funds. These funds invest in corporate bonds or

government-backed mortgage securities that have a fixed rate of return.

Since bond prices fluctuate with changing interest rates, there is some risk

involved despite the fund's conservative nature. When interest rates rise, the

market price of fixed-income securities declines and so will the value of the

income funds' investments. Conversely, in periods of declining interest rates, the

value of fixed-income funds will rise and investors will enjoy capital appreciation

as well as income.

9



Fixed-income funds offer a higher level of current income than money market

funds, but a lower stability of principal. They are generally more stable in price

than funds that invest in stocks. Within the fixed-income category, funds vary

greatly in their stability of principal and in their dividend yields. High-yield funds,

which seek to maximize yield by investing in lower-rated bonds of longer

maturities, entail less stability of principal than fixed-income funds that invest in

higher-rated but lower-yielding securities.

Some fixed-income funds seek to minimize risk by investing exclusively in

securities whose timely payment of interest and principal is backed by the full

faith and credit of Indian Government. These include securities like various

Treasury bills, government dated securities, etc.

Fixed-income funds are suitable for investors who want to maximize current

income and who can assume a degree of capital risk in order to do so. Again,

carefully read the prospectus to learn if a fund's investment policy with respect to

yield and risk coincides with your own objectives.

2. Balanced/Equity Income funds

Equity income funds seek high current yield by investing primarily in equity

securities of companies which pay high dividends. Unlike interest payments on

bonds, dividends on equity securities can change as companies raise or lower their

dividends. Since yield-oriented stocks are more volatile than comparably rated

fixed-income securities, equity income funds offer less stability of principal than

fixed-income funds. Balanced funds are more evenly invested in equities and

income securities.

Balanced and equity income funds are suitable for conservative investors who

want high current yield with some growth.

3. Money Market Funds

10



For the cautious investor, these funds provide a very high stability of principal

while seeking a moderate to high current income. They invest in highly-liquid,

virtually risk-free, short-term debt securities of agencies of the Government,

banks and corporations and Treasury Bills. They have no potential for capital

appreciation.

Tax-exempt money market funds invest in securities that provide safety of

principal, liquidity and income exempt from federal income taxes by investing in

short-term, high-rated municipal obligations.

Because of their short-term investments, money market mutual funds are able to

keep a constant share price; only the yield fluctuates. Therefore, they are an

attractive alternative to bank accounts. With yields that are generally competitivewith -- and usually somewhat higher than -- yields on bank certificates of deposit

(CDs), they offer several advantages:

o Money can be withdrawn any time without penalty. Money market funds

also offer check writing privileges.

o Money market funds invest only in highly-liquid, short-term, top-rated

money market instruments.

o Money market funds are suitable for conservative investors who want high

stability of principal and moderate current income with immediate liquidity.

Money market funds are suitable for conservative investors who want high

stability of principal and moderate current income with immediate liquidity.

4. Municipal Bond Funds

Municipal bond funds provide higher tax-exempt income than tax-exempt money

market funds by investing in longer-maturity (and often lower-rated) securities, which

generally offer higher yields than the short-term, high-rated securities in which tax-

exempt money market funds invest. Municipal bond funds vary greatly in the quality

and maturity of the municipal bonds they invest in. The longer the maturity, the

11



higher the yield. Also, the lower the credit rating of the issuer, the greater is the risk

and the higher the yield.

While municipal bond funds generally provide lower yields than income funds with debt

obligations of similar maturities and ratings, for an investor in a high marginal tax bracket the after-tax yields of municipal bond funds will be higher. The price and yield of

municipal bond funds will fluctuate moderately with interest rates. As interest rates

decline, the value of principal increases while yield decreases; as rates increase, bond

prices decline but yields increase.

Suitable for investors in medium to higher tax brackets who want current income free

from federal income tax.

5. Double & Triple Tax-Exempt Bond Funds

These bond funds provide the investor with an even greater tax advantage by investing in

municipal bonds of a single state. Triple tax-exempt funds are exempt from income tax in

a specific city. Thus they generate income exempt from not only federal income tax but

also from state and/or city income tax for residents of those jurisdictions. Like all bond

funds, the value of the shares will fluctuate with interest rates, as will the current yield.

Also, the stability of principal and yield levels varies with the quality and maturity length

of the bonds in which the funds invest. Lack of geographic diversification increases credit

risk of these funds compared with national funds.

These funds are suitable for investors in medium to high tax brackets in high tax states

who want income with maximum exemption from taxes.

6. Specialty/Sector Funds

These funds invest in securities of a specific industry or sector of the economy such as

health care, high technology, leisure, utilities or precious metals. Because such funds

invest primarily in one sector, they do not offer the element of downside risk protection

found in mutual funds that invest in a broad range of industries. However, the funds do

12



enable investors to diversify holdings among many companies within an industry, a more

conservative approach than investing directly in one particular company. Sector funds

offer the opportunity for sharp capital gains in cases where the fund's industry is "in

favor" but also entail the risk of capital losses when the industry is out of favor.

While sector funds restrict holdings to a particular industry, other specialty funds such as

index funds give investors a broadly-diversified portfolio and attempt to mirror the

performance of various market averages. Index funds generally buy shares in all the

companies composing the S&P 500 Stock Index or other broad stock market indices.

Asset allocation funds move funds among a variety of markets and instruments in

response to the fund manager's view of relative market prospects. They are broadly

diversified and sometimes have higher management fees since there may be a variety of securities in the portfolio. These funds are suitable for investors, who can tolerate a

moderate to high degree of risk, are seeking capital appreciation and to whom dividend

income is secondary in importance. And whatever the instruments, social responsibility

funds apply moral and ethical as well as economic principles in the selection of

securities.

Specialty funds are suitable for investors seeking to invest in a particular industry who

can monitor industry performance regularly and alter investment strategies accordingly.Investors must be willing to assume the risk of potential loss in value of their investment

in the hope of achieving substantial gains. They are not suitable for investors who must

conserve their principal or maximize current income.

c) Types of Mutual Funds Best Suited to Particular Investment Objective .

Basic

ObjectiveFund Type

Funds’

Investment

Capital

Appreciation

Potential

Current

Income

Potential

Risk

13



Maximum

Capital

Growth

Aggressive

GrowthCommon

stocks with

potential for

very rapid

growth. May

employ certain

aggressive

strategies

Very High Very LowHigh to

Very HighInternational

Growth

High Capital

Growth

Specialty/

sector

Common

stocks with

long-term

growth

potential

High to Very

HighVery Low High

International

Growth &

Income

Current

Income &

Capital

Growth

Fixed

Income

Common

stocks with

potential for

high dividends

and capital

appreciation

Moderate ModerateModerate

to High

14



High

Current

Income

Equity

Income

Both high-

dividend-

paying stocks

& bonds

Very LowHigh to

Very High

Low to

ModerateGeneral

Money

Market

Funds

Current

Income &

Protection of

Principal

Tax-ExemptMoney

Market

Money market

instruments None

Moderate

to HighVery Low

Tax-Free

Income &

Protection of

Principal

U.S.

Short-term

municipal

notes and

bonds

None Moderate

to High Low

Current

Income &

Maximum

Safety of

Principal

Government

Money

Market

U.S. Treasury

and agency

issues

guaranteed by

the U.S.

Government

NoneModerate

to HighLow

Municipal

Bonds

Tax-Exempt

Income

Double &

Triple Tax-

Exempt

A broad range

of municipal

bonds

Low to

Moderate

Moderate

to High

Low to

Moderate

15



d) The Benefits of Mutual Funds

1. Professional Investment Management.

By pooling the funds of thousands of investors, mutual funds provide full-time, high-

level professional management that few individual investors can afford to obtain

independently. Such management is vital to achieving results in today's complex markets.

The fund managers’ interests are tied to investors’ interest, because their compensation is

based not on sales commissions, but on how well the fund performs. These managers

have instantaneous access to crucial market information and are able to execute trades on

the largest and most cost-effective scale. In short, managing investments is a full-time job

for professionals.

2. Diversification.

Mutual funds invest in a broad range of securities. This limits investment risk by

reducing the effect of a possible decline in the value of any one security. Mutual fund

shareowners can benefit from diversification techniques usually available only to

investors wealthy enough to buy significant positions in a wide variety of securities.

3. Low Cost.

If investor tries to create her own diversified portfolio of 50 stocks, she needs at least

Rs.1,00,000 and pays thousands of rupees in commissions to assemble a portfolio.

Mutual fund lets investor participate in a diversified portfolio for as little as Rs.1,000 and

sometimes less. And if investor buys a no-load fund, then pays no sale charges to own

them.

4. Conveniences and Flexibility.

Investor owns just one security rather than many, yet enjoy the benefits of a diversified

portfolio and a wide range of services. Fund managers decide what securities to trade,

16



clip the bond coupons, collect the interest payments and see that dividends on portfolio

securities are received and investors’ are rights exercised. It's easy to purchase and

redeem mutual fund shares, either directly online or with a phone call.

5. Quick, Personalized Service.

Most funds now offer extensive websites with a host of shareholder services for

immediate access to information about investors’ fund accounts. Or a phone call puts an

investor in touch with a trained investment specialist at a mutual fund company who can

provide information investor can use to make her own investment choices, assist her with

buying and selling her fund shares, and answer questions about her account status.

6. Ease of Investing

Investor may open or add to her account and conduct transactions or business with the

fund by mail, telephone or bank wire. Investor can even arrange for automatic monthly

investments by authorizing electronic fund transfers from her checking account in any

amount and on a date she choose. Also, many of the companies allow account

transactions online.

7. Total Liquidity, Easy Withdrawal

Investor can easily redeem her shares anytime she needs cash by letter, telephone, bank

wire or check, depending on the fund. Investor’s proceeds are usually available within a

day or two.

8. Life Cycle Planning

With no-load mutual funds, investor can link her investment plans to future individual

and family needs -- and make changes as her life cycles change. Investor can invest in

growth funds for future college tuition needs, then move to income funds for retirement,

and adjust her investments as needs change throughout her life. With no-load funds, there

are no commissions to pay when investor change her investments.

9. Market Cycle Planning

17



For investors who understand how to actively manage their portfolio, mutual fund

investments can be moved as market conditions change. Investor funds in equities when

the market is on the upswing and move into money market funds on the downswing or

take any number of steps to ensure that her investments are meeting her needs in

changing market climates. Since it is impossible to predict what the market will do at any

point in time, staying on course with a long-term, diversified investment view is

recommended for most investors.

10. Investor Information

Shareholders receive regular reports from the funds, including details of transactions on a

year-to-date basis. The current net asset value of investors shares (the price at which you

may purchase or redeem them) appears in the mutual fund price listings of dailynewspapers. Investor can also obtain pricing and performance results for the all mutual

funds at this site, or it can be obtained by phone from the fund.

11. Periodic Withdrawals

If investor wants steady monthly income, many funds allow her to arrange for monthly

fixed checks to be sent to her, first by distributing some or all of the income and then, if

necessary, by dipping into her principal.

12. Dividend Options

Investor can receive all dividend payments in cash. Or investor can have them reinvested

in the fund free of charge, in which case the dividends are automatically compounded.

This can make a significant contribution to investor’s long-term investment results. With

some funds investors can elect to have their dividends from income paid in cash and

capital gains distributions reinvested.

13. Automatic Direct Deposit

Investor can usually arrange to have regular, third-party payments -- such as Social

Security or pension checks -- deposited directly into investor’s fund account. This puts

investor’s money to work immediately, without waiting to clear her checking account,

and it saves one from worrying about checks being lost in the mail.

18



14. Safekeeping

When investor own shares in a mutual fund, she own securities in many companies

without having to worry about keeping stock certificates in safe deposit boxes or sending

them by registered mail. Investor doesn’t even have to worry about handling the mutualfund stock certificates; the fund maintains her account on its books and sends one

periodic statements keeping track of all her transactions.

15. Online Services

The internet provides a fast, convenient way for investors to access financial information.

A host of services are available to the online investor including direct access to no-load

companies.

17. Asset Management Accounts

These master accounts, available from many of the larger fund groups, enable an investor

to manage all her financial service needs under a single umbrella from unlimited check

writing and automatic bill paying to discount brokerage and credit card accounts.

STRUCTURE OF A MUTUAL FUND

A mutual fund is set up in the form of a trust, which has sponsor, trustees, Asset

Management Company (AMC) and a custodian. The trust is established by a sponsor or

more than one sponsor who is like a promoter of a company. The trustees of the mutual

fund hold its property for the benefit of the unit-holders. The AMC, approved by SEBI,

manages the funds by making investments in various types of securities. The 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.

19



A typical mutual fund structure in India can be graphically represented as follows:

REGULATORY REGIME

A mutual fund is a fund established in the form of a trust to raise monies through the sale

of units to the public or a section of the public under one or more schemes for investingin securities, including money market instruments. The regulation of mutual funds

operating in India falls under the purview of the authority of the Securities and Exchange

Board of India (SEBI). Any person proposing to set up a mutual fund in India is required,

under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996

(Mutual Fund Regulations), to be registered with the SEBI.

a. Mutual Fund

The Mutual Fund Regulations lay down several criteria that need to be fulfilled in order

to be granted registration as a mutual fund. Every mutual fund must be registered with

SEBI and must be constituted in the form of a trust in accordance with the provisions of

the Indian Trusts Act, 1882. The instrument of trust must be in the form of a deed

20



between the sponsor and the trustees of the mutual fund duly registered under the

provisions of the Indian Registration Act, 1908.

b. Sponsor

The sponsor is required, under the provisions of the Mutual Fund Regulations, to have a

sound track record, a reputation of fairness and integrity in all his business transactions

additionally; the sponsor should contribute at least 40% to the net worth of the AMC.

However, if any person holds 40% or more of the net worth of an AMC shall be deemed

to be a sponsor and will be required to fulfill the eligibility criteria specified in the

Mutual Fund Regulations. The sponsor or any of its directors or the principal officer

employed by the mutual fund should not be guilty of fraud, not be convicted of an

offence involving moral turpitude or should have not been found guilty of any economicoffence.

c. Trustees

The mutual fund is required to have an independent Board of Trustees, i.e. two thirds of

the trustees should be independent persons who are not associated with the sponsors in

any manner whatsoever. An AMC or any of its officers or employees are not eligible to

act as a trustee of any mutual fund. In case a company is appointed as a trustee, then its

directors can act as trustees of any other trust provided that the object of such other trust

is not in conflict with the object of the mutual fund. Additionally, no person who is

appointed as a trustee of a mutual fund can be appointed as a trustee of any other mutual

fund unless he is an independent trustee and prior approval of the mutual fund of which

he is a trustee has been obtained for such an appointment.

The trustees are responsible for - inter alia - ensuring that the AMC has all its systems in

place, all key personnel, auditors, registrars etc. have been appointed prior to the launch

of any scheme. It is also the responsibility of the trustees to ensure that the AMC does not

act in a manner that is favorable to its associates such that it has a detrimental impact on

the unit holders, or that the management of one scheme by the AMC does not

compromise the management of another scheme. The trustees are also required to ensure

that an AMC has been diligent in empanelling and monitoring any securities transactions

21



with brokers, so as to avoid any undue concentration of business with any broker. The

Mutual Fund Regulations further mandates that the trustees should prevent any conflicts

of interest between the AMC and the unit holders in terms of deployment of net worth.

The trustees are also responsible for ensuring that there is no change carried out in thefundamental attributes of any scheme or the trust or fees and expenses payable or any

other change that would modify the scheme and affect the interest of unit holders, unless

each unit holder is provided with written communication thereof. In addition, the unit

holders must be given the option to exit at the prevailing Net Asset Value (“NAV”)

without any exit load. They are obliged to perform a quarterly review of all transactions

carried out between the mutual funds, AMC and its associates. As far as professional

indemnity cover for the trustees or the AMC is concerned, industry practice in India

reveals that the insurance policy is taken out by an Indian insurance company (as is

required by the Insurance Act, 1938) while the risk is subsequently ceded to an overseas

re-insurer who underwrites the primary policy issued by the Indian insurance company.

d. Asset Management Company

The sponsor or the trustees are required to appoint an AMC to manage the assets of the

mutual fund. Under the Mutual Fund Regulations, the applicant must satisfy certain

eligibility criteria in order to qualify to register with SEBI as an AMC:

o the sponsor must have at least 40% stake in the AMC;

o the directors of the AMC should be persons having adequate professional

experience in finance and financial services related field and not found guilty of

moral turpitude or convicted of any economic offence or violation of any

securities laws;

o

the AMC should have and must at all times maintain, a minimum net worth of Rs.100 million;

o the board of directors of such AMC has at least 50% directors, who are not

associate of, or associated in any manner with, the sponsor or any of its

subsidiaries or the trustees;

22



o the Chairman of the AMC is not a trustee of any mutual fund.

In addition to the above eligibility criteria and other on going compliance requirements

laid down in the Mutual Fund Regulations, the AMC is required to observe the following

restrictions in its normal course of business:

o any director of the AMC cannot hold office of a director in another AMC unless

such person is an independent director and the approval of the board of the AMC

of which such person is a director, has been obtained;

o the AMC shall not act as a trustee of any mutual fund;

o the AMC cannot undertake any other business activities except activities in the

nature of portfolio management services, management and advisory services tooffshore funds, pension funds, provident funds, venture capital funds,

management of insurance funds, financial consultancy and exchange of research

on commercial basis if any of such activities are not in conflict with the activities

of the mutual fund; However, the AMC may, itself or through its subsidiaries,

undertake such activities if it satisfies the Board that the key personnel of the asset

management company, the systems, back office, bank and securities accounts are

segregated activity wise and there exist systems to prohibit access to inside

information of various activities.

o the AMC shall not invest in any of its schemes unless full disclosure of its

intention to invest has been made in the offer. However, an AMC shall not be

entitled to charge any fees on its investment in that scheme.

The AMC is required to take all reasonable steps and exercise due diligence to ensure

that the investment of funds pertaining to any scheme are not contrary to the provisions

of the Mutual Fund Regulations and the trust deed. An AMC cannot, through any broker

associated with the sponsor, purchase or sell securities, which is an average of 5% or

more of the aggregate purchases and sale of securities made by the mutual fund in all its

schemes. However, the aggregate purchase and sale of securities excludes the sale and

distribution of units issued by the mutual fund and the limit of 5% shall apply only for a

block of any three months.

23



e. Custodian

The mutual fund is required, under the Mutual Fund Regulations, to appoint a custodian

to carry out the custodial services for the schemes of the fund. Only institutions with

substantial organizational strength, service capability in terms of computerization, andother infrastructure facilities are approved to act as custodians. The custodian must be

totally delinked from the AMC and must be registered with SEBI. Under the Securities

and Exchange Board of India (Custodian of Securities) Guidelines, 1996, any person

proposing to carry on the business as a custodian of securities must register with the

SEBI and is required to fulfill specified eligibility criteria. Additionally, a custodian in

which the sponsor or its associates holds 50% or more of the voting rights of the share

capital of the custodian or where 50% or more of the directors of the custodian represent

the interest of the sponsor or its associates cannot act as custodian for a mutual fund

constituted by the same sponsor or any of its associate or subsidiary company.

f. Schemes

Under the Mutual Fund Regulations, a mutual fund is allowed to float different schemes.

Each scheme has to be approved by the trustees and the offer document is required to be

filed with the SEBI. The offer document should contain disclosures which are adequate

enough to enable the investors to make informed investment decision, including thedisclosure on maximum investments proposed to be made by the scheme in the listed

securities of the group companies of the sponsor. If the SEBI does not comment on the

contents of the offering documents within 21 days from the date of filing, the AMC

would be free to issue the offer documents to public.

There are obligations on the AMC and the trustee to ensure that the statements made in

the offer documents are true and correct. The AMC is also required to provide an option

to the unit-holder to nominate a person in whom the units held by him shall vest in theevent of his death. SEBI has also prescribed an Advertising Code that has to be observed

while launching a new scheme.

Close-ended schemes are required to be listed on a recognized stock exchange within six

months from the closure of the subscription. However, this requirement is not mandatory

24



if the scheme provides for periodic repurchase facility to all the unit-holders or monthly

income or caters to special classes of persons, if the details of such repurchase facility are

clearly disclosed in the offer document or if the scheme opens for repurchase within a

period of six months from the closure of subscription. The units of close-ended scheme

may be converted into open-ended scheme if the offer document of such scheme

discloses the option and the period of such conversion or if the unit-holders are provided

with an option to redeem their units in full. A close-ended scheme is required to be fully

redeemed at the end of the maturity period. However, a close-ended scheme may be

allowed to be rolled over if the purpose, period and other terms of the roll over and all

other material details of the scheme including the likely composition of assets

immediately before the roll over, the net assets and NAV of the scheme, are disclosed to

the unit-holders and a copy of the same has been filed with SEBI. Additionally, such a

roll over would be permitted only in case of those unit-holders who have expressed their

consent in writing and the unit-holders who do not opt for the roll over or have not given

written consent shall be allowed to redeem their holdings in full at NAV based price.

The SEBI has restricted a mutual fund from giving guaranteed returns in a scheme unless

such returns are fully guaranteed by the sponsor or the AMC or a statement indicating the

name of the person who will guarantee the return is made in the offer document or the

manner in which the guarantee to be met has been stated in the offer document.

g. Investment Criteria

The Mutual Fund Regulations lay down certain investment criteria that the mutual funds

need to observe. There are certain restrictions on the investments made by a mutual fund.

These restrictions are listed down as Annexure 2 to this paper.

The moneys collected under any scheme of a mutual fund shall be invested only in

transferable securities in the money market or in the capital market or in privately placeddebentures or securitised debts. However, in the case of securitised debts, such fund may

invest in asset backed securities and mortgaged backed securities. Furthermore, the

mutual fund having an aggregate of securities which are worth Rs.100 million

(approximately USD 2.15 million) or more shall be required to settle their transactions

through dematerialized securities.

25



In addition to the above, mutual funds are not permitted to borrow money from the

market except to meet temporary liquidity needs of the mutual funds for the purpose of

repurchase, redemption of units or payment of interest or dividend to the unit holders.

Even such borrowing cannot exceed 20% of the net asset of a scheme and the duration of

such a borrowing cannot exceed a period of six months. Similarly, a mutual fund is not

permitted to advance any loans for any purpose. A mutual fund is permitted to lend

securities in accordance with the Stock Lending Scheme of SEBI. The funds of a scheme

are prohibited from being used in option trading or in short selling or carry forward

transactions. However, SEBI has permitted mutual funds to enter into derivative

transactions on a recognized stock exchange for the purpose of hedging and portfolio

balancing and such investments in derivative instruments have to be made in accordance

with SEBI Guidelines issued in this regard.

h. Limitation of Fees and Expenses

The Mutual Fund Regulations lay down certain restrictions on the fees that can be

charged by the AMC and also caps the expenses that can be loaded on to the Fund. The

AMC can charge the mutual fund with investment and advisory fees subject to the

following restrictions:

(i) One and a quarter of one per cent of the weekly average net assets outstanding in eachaccounting year for the scheme concerned, as long as the net assets do not exceed Rs. 1

billion, and

(ii) One per cent of the excess amount over Rs. 1 billion, where net assets so calculated

exceed Rs. 1 billion.

For schemes launched on a no load basis, the AMC can collect an additional management

fee not exceeding 1% of the weekly average net assets outstanding in each financial year.

In addition to the aforesaid fees, the AMC may charge the mutual fund with the initial

expenses of launching the schemes and recurring expenses such as marketing and selling

expenses including agents’ commission, if any, brokerage and transaction cost, fees and

expenses of trustees, audit fees, custodian fees etc.

26



The Mutual Fund Regulations also lay down a cap on the initial expense and the ongoing

expense that can be borne by a scheme. In respect of a scheme, initial expenses, they

cannot exceed 6% of the initial resources raised under that scheme and any excess over

the 6% initial issue expense shall be borne by the AMC. Ongoing expenses (excluding

issue or redemption expenses) including the investment management and advisory fee

cannot exceed the following limits:

i) On the first Rs.100 crores of the average weekly net assets - 2.5%

ii) On the next Rs.300 crores of the average weekly net assets - 2.25%

iii) On the next Rs.300 crores of the average weekly net assets - 2.0%

iv) On the balance on the assets - 1.75%

In addition to the above provisions, the Mutual Fund Regulations lay down several

compliance / filing requirements pertaining to reporting to the SEBI, guidelines for

calculation of Net Asset Value, disclosure requirements, accounting norms, etc.

27



2. RESEARCH METHODOLOGY

This thesis is basically a compilation and profound analysis of the primary and secondary

data will be collected from varied sources, pertaining to the focus of study. The study has

been a combination of field research as well as desk research. Embodied in the report

data will be collected from secondary sources comprising the libraries. Specific and

categorical articles, EPCs, government notifications, trade journals and magazines.

Data Collection :

Primary data is collected from :

Questionnaire Surveys.

Secondary data is collected from :

Search engines including thomson, hoovers, reuters, factiva, bloomberg

Magazines and journals, books and Internet.

Case studies

28



OBJECTIVES OF THE STUDY

• To find about Indian scenario of mutual fund

• The Mutual Fund Industry is fast gaining popularity in today’s unpredictable financial

scenario. It is emerging as one of the most lucrative investment options. The primary

objective of the project is to gain detailed insight into this Industry.

• To recent trends in mutual funds industry.

• To evaluate types of Mutual Funds

29



3. LITERATURE REVIEW

MUTUAL FUND

What is Mutual Fund?

We have discussed the concept of mutual funds earlier. To revise mutual funds are

financial intermediaries/investment institutions which act as investment conduit. Mutual

Funds are associate of trusts of people (public members) who wish to make investments

in the financial instruments or assets of the business sector or corporate sector for mutual

benefit of its members. The funds collects the money of these members from their

savings and invests them in a diversified portfolio of financial assets with a view to

reduce risk and to maximise capital appreciation for distribution to its members on pro-

rata basis. They enjoy collectively the benefits of expertise in investment by specialist in

the trust, which no single individual by himself could enjoy. Mutual fund if thus a

concept of mutual Help of subscribers for portfolio investment and management of these

investments by experts in the field.

Mutual funds are important segment of the financial system of the country. The financial

system comprises the financial institutions, banks, investment bodies, the capital market

and money market intermediaries the instruments used in the capital and money markets

through which money resources are mobilised from savers of funds to users of funds.

Mutual funds act as intermediaries which link the savor and the capital market.

Mutual Fund has been defined by different authors in different words meaning one and

the same thing i.e. it is a non-depository or non banking financial intermediary which acts

as “important vehicle for bringing wealth holders end deficit units together indirectly.

According to Dr. J.C. Verma (1992) Mutual Funds are financial intermediaries in the

investment business. They collect funds from the Public and invest on behalf of the

investor as “pass through entities” with losses and gains accruing to the investors only.

30



Mutual Funds represent pooled saving of numerous investors invested by professional

fund managers as diversified portfolio to obtain optimum return on investment with least

risk to investors. SEBI (Security Exchange Board of India) a government organisation

has defined Mutual Funds as a special type of investment institution which acts as

investment conduit. According to H.S. Shadak (1997) Mutual Funds are dynamic

financial Institutions which play a crucial role in an economy by mobilising savings and

investing them in the capital market, thus establishing a link between savings and the

capital market. I M. Pandey (1996) describes Mutual Funds as significant development in

Indian Capital Market which act as financial intermediaries/portfolio managers help

investors by rendering low cost services. Mutual funds gather and process information;

identify investment opportunities, formulate investment strategies, invest funds and

monitor progress at a very low cost.

According to Sampat Mukherjee (1996) Mutual Funds are investment companies that

issue and sell redeemable securities that present an undivided interest in the assets held

by the funds, sometimes classified as management companies or unit investment trust,

pooled resources of many investors that provide diversification and professional

management.

According to C.M. Kulshreshtha (1994) Mutual Funds are financial intermediaries

collects or pools the savings of the community numerous individual and invests the

money raised in a diversified portfolio of securities, including equities, bonds, debentures

and other interments thus spreading and reducing risk. The objective is to maximise

returns to investors who participates in equity indirectly through mutual funds”

Thus we see that MF investments large funds in a fairly large and well diversified

portfolio of sound investment. It employs professionally qualified and well experienced

investment consultants and fund managers who take the pooled money and invest in a

variety of bluechip companies which are selected from a wide range of industries with the

objective of maximising returns/ income on investments. Institutions that collectively

manage the funds obtained from different investors have commonly come to be known as

Mutual Funds. These form an important part of capital market providing the benefits of

31



diversified portfolios and expert fund management to a large number of persons,

particularly small investors. A mutual fund is generally seen as portfolio manager,

managing funds of members.

Simply what we can say is that Mutual Funds sell equity shares to investors and use these

funds to purchase stock and/or bonds. They tend to specialise in denomination and

default risk intermedation. Mutual Funds sell relatively small denomination securities to

market securities of deficit units. These organisations pool funds and thus reduce the risks

by diversification. They also gain economies of scale which lower the cost of analysing

securities, managing portfolio and trading in stocks and bonds. Mutual funds earn income

by way of interest or dividend or both from securities it holds. It deducts fees, operating

expenses and a management income, and then passes the remainder to wealth holders

through dividends on the mutual fund shares. The dividend fluctuates with the income on

mutual fund investments. To sum up, mutual funds represent pooled savings of numerous

investors invested by professional fund managers as diversified portfolio to obtain

optimum return on investments, with least risk to the investors. Thus we see, the investor

invest his money in mutual funds to enable the letter to further re-invest in scripts which

provide both short-term and long term gains. Therefore, this intermediary (MF) is a

decision maker for public money investments. Therefore, the business of mutual funds is

to re-invest in any scrip in the market, and prove their performance through returns to

investors. This success of mutual fund will depend on the performance i.e. returns to the

investors.

According to L.C. Gupta (1993) Success of Mutual Fund Organisation will depend on

three fundamentals.

a) The reliability and superiority of its investment performance. This is a matter of

investment research and investment skills.

b) Understanding of the needs of investors while designing investment schemes.

c) The quality of post sale service given to clients

32



HOW MUTUAL FUND IS FLOATED

Government allows private sector, public sector and joint sector to establish mutual

funds. The mutual fund can be sponsored by a limited company with a sound track

record, general reputation and fairness in all its business transactions. A scheduled bank or All India or State level financial institution can also sponsor a mutual fund. Two or

more limited companies can also jointly sponsor a mutual fund. The sponsoring

entity/entities should have a sound record as evidenced by:

a) audited balance sheet and profit and loss account for last five years;

b) a positive net worth and consistent record of profitability and a good financial

standing during the last five years;

c) good credit record with banks and financial institutions;

d) general reputation in the market;

e) organisation and management; and

f) fairness in business transactions.

A company in the private sector or a bank or a financial institution desirous of setting up

a mutual fund should establish the fund as a trust under the Indian Trusts Act. It shouldthen establish an Asset Management Company. The Asset management Company should

have net worth of not less than Rs. 5 crores (50 million rupees).

The Asset Management Company can issue shares to the public and mobilize share

capital or it can avail loans from the sponsoring company or from any other bank or

institution. The sponsoring company/institution has to get authorization from SEBI for

the mutual fund as well as for the Asset Management Company by making an application

to SEBI in the prescribe application form and by paying prescribed fee. The AMC willoperate the mutual fund.

33



HOW MUTUAL FUND COLLECTS FUNDS

Mutual funds offer units or shares to the public by issuing an offer document or

prospectus. The offer document/prospectus contains:

(1) the face value of each unit in terms of rupees;

(2) objective of the scheme;

(3) how the funds collected will be invested and in what securities or in what money

market instruments;

(4) minimum amount of subscription per application;

(5) duration of the scheme: SEBI does not generally allow more than 10 yearsduration for any mutual fund scheme;

(6) who can apply for units;

(7) date of launching the scheme and the date upto which applications will be

received; and

(8) repurchase facility (if available) or arrangements proposed to be made for listing

the units on Stock Exchanges.

Each scheme of mutual funds should be registered with SEBI. The funds give wide

publicity through newspapers about their schemes and make arrangements for collecting

the application money in important centres in one or more banks. After the last date for

receiving the application is over, mutual funds collect all the applications, scrutinize them

and allot units to the applicants and issue them unit certificates, which are the evidence

for owning the units.

34



HOW MUTUAL FUNDS OPERATE

Mutual funds invest the funds collected from the public according to the investment

objectives stated in the offer documents/prospectus. Mutual funds generally invest in a

wide range of securities in different industries with a view to spreading the investment

risk. Mutual funds are allowed to invest only in transferable securities either in the capital

market or in the money market. They can invest in privately placed debentures or

securities debts. All debt instruments in which mutual funds invest should have been

rated as investment grade by CRISIL or any other approved credit rating agency. Mutual

funds are prohibited from giving term loans. No individual scheme of mutual fund can

invest more than 5 per cent of its corpus in any one company’s shares. Under all its

schemes put together the investment of a mutual funds should not exceed 5 per cent of the paid up capital of any single company. Further, under all its schemes put together

mutual funds should not invest more than 10 per cent of their funds in the shares or

debentures or other securities of a single company. There is a further restriction that the

investment made by the mutual fund in any single industry should not exceed 15 per cent

of its funds in the shares and debentures of any specific industry. Mutual funds should

take delivery of scrips purchased and should give delivery of scrips sold by them. Mutual

funds should not engage in short selling or carry forward transactions or badla finance.

The scrips purchased by the mutual fund should be transferred to the fund’s name and

scheme also.

The Government has granted tax exemption to all mutual funds approved by SEBI. The

investors in the mutual fund pay income-tax on the dividend/income received by them

each year from the mutual funds.

Mutual funds generally publish their net asset value every Friday. Net asset value

represents the current market value for the funds on the basis of the share marketquotations divided by the number of units or shares outstanding on any give date.

Mutual funds employ an expert fund manager for each scheme and he is entrusted with

the specific task of purchasing shares and other securities from the Stock Exchange and

selling them at a higher price at the appropriate time. The mutual fund mangers are

35



subject to the control and superintendence of the board of trustees of the fund. The board

of trustees of the mutual fund are eminent persons who have wide experience in

investment matters, finance, administration etc. The board of trustees guide the

operations of the mutual fund.

Mutual funds have to submit unaudited half-yearly financial results to SEBI. The mutual

funds should get their accounts audited once in a year by a qualified chartered accountant

or by a firm of chartered accountant and submit the audited accounts to SEBI and publish

the abridged version of balance sheet, income and expenditure statements etc., in

newspapers for the benefit of investing public.

After the annual accounts are audited, mutual funds ascertain the income earned by them

and distribute atleast 90 per cent of the income by way of dividends to their unit holders.After the duration of each scheme is over, mutual funds sell their securities pertaining to

the concerned scheme and redeem the units issued by them by paying the investors their

capital and the capital gains made by fund in proportion to their respective holdings of

units in the fund.

ADVANTAGES OF MUTUAL FUNDS FOR INVESTORS

Reduced Risk: Mutual funds invest in a number of reputed and well managed blue-chip

companies. So, the fall in the prices of a few scrips, will not affect them much. Thus risk

of loss due to a fall in the value of few scrips is minimized.

Expertise of Professional Management: The investors get the expertise of professional

money managers who watch the funds portfolio and take necessary decisions on what

scrips are to be purchased, what scrips are to be sold and when they should be bought and

sold.

Diversification of Portfolio: When a person invests in a mutual fund, he participates in a

larger basket of shares of may different companies in a number of different industries

which are included in the fund’s portfolio.

36



Automatic Reinvestment: In a mutual fund it is possible to reinvest the dividends and

capital gains. The automatic reinvestment feature of a mutual fund is a form of forced

saving and can make a big difference in the long run.

Selection and timings of investment: Expertise in the selection of shares, debentures,etc., and timing is made available to investors that invested funds generate higher returns

to them.

Liquidity of investment: Mutual funds are ready on any day (after the initial lock in

period is over) to buy back the units from the investors at the net asset value of the

investment. They announce through daily newspapers their re-purchase price of the units

issued under different schemes.

Saving Habit: Mutual funds encourage saving and investment habit among the public at

large.

Tax Shelter: Some mutual funds are permitted by the Government to launch Equity-

Linked Tax Saving Schemes. Investors who invest in such schemes get tax relief or tax

rebate.

Safety of Funds: Mutual funds are governed by the guidelines issued by the Ministry of

Finance on 14.02.1992. The SEBI acts as a watch-dog and tries to protect the interest of

investors. So, the funds invested in Mutual Funds are generally regarded as safe.

Mutual Fund Market in India since its inception:

The Indian mutual fund industry has evolved over distinct stages. The growth of the

mutual fund industry in India can be divided into four phases: Phase I (1964-87), Phase

II (1987-92), Phase III (1992-97), and Phase IV (beyond 1997).

Phase I: The mutual fund concept was introduced in India with the setting up of

UTI in 1963. The Unit Trust of India (UTI) was the first mutual fund set up under

the UTI Act, 1963, a special act of the Parliament. It became operational in 1964

with a major objective of mobilizing savings through the sale of units and

investing them in corporate securities for maximizing yield and capital

37



appreciation. This phase commenced with the launch of Unit Scheme 1964 (US-

64) the first open-ended and the most popular scheme. UTI’s investible funds, at

market value (and including the book value of fixed assets) grew from Rs 49 crore

in1965 to Rs 219 crore in 1970-71 to Rs 1,126 crore in 1980-81 and further to Rs

5,068 crore by June 1987

Phase II: The second phase witnessed the entry of mutual fund companies

sponsored by nationalized banks and insurance companies. In 1987, SBI Mutual

Fund and Canbank Mutual Fund were set up as trusts under the Indian Trust Act,

1882. In 1988, UTI floated another offshore fund, namely, The India Growth

Fund which was listed on the New York Stock Exchange (NYSB). By 1990, the

two nationalized insurance giants, LIC and GIC, and nationalized banks, namely,

Indian Bank, Bank of India, and Punjab National Bank had started operations of

wholly-owned mutual fund subsidiaries. The assured return type of schemes

floated by the mutual funds during this phase was perceived to be another banking

product offered by the arms of sponsor banks. In October 1989, the first

regulatory guidelines were issued by the Reserve Bank of India, but they were

applicable only to the mutual funds sponsored by FIIs. Subsequently, the

Government of India issued comprehensive guidelines in June 1990 covering all

‘mutual funds. These guidelines emphasized compulsory registration with SEBI

and an arms length relationship be maintained between the sponsor and asset

management company (AMC). With the entry of public sector funds, there was a

tremendous growth in the size of the mutual fund industry with investible funds,

at market value, increasing to Rs 53,462 crore and the number of investors

increasing to over 23 million. The buoyant equity markets in 1991-92 and tax

benefits under equity-linked savings schemes enhanced the attractiveness of

equity funds

Phase III: The year 1993 marked a turning point in the history of mutual funds in

India. Tile Securities and Exchange Board of India (SEBI) issued the Mutual

Fund Regulations in January 1993. SEBI notified regulations bringing all mutual

funds except UTI under a common regulatory framework. Private domestic and

38



foreign players were allowed entry in the mutual fund industry. Kothari group of

companies, in joint venture with Pioneer, a US fund company, set up the first

private mutual fund the Kothari Pioneer Mutual Fund, in 1993. Kothari Pioneer

introduced the first open-ended fund Prima in 1993. Several other private sector

mutual funds were set up during this phase. UTI launched a new scheme, Master-

gain, in May 1992, which was a phenomenal success with a subscription of Rs

4,700 crore from 631akh applicants. The industry’s investible funds at market

value increased to Rs 78,655 crore and the number of investor accounts increased

to 50 million. Mutual funds found it increasingly difficult to raise money. The

average annual sales declined from about Rs 13,000. Crore in 1991-94 to about

Rs 9,000 crore in 1995 and 1996.

Phase IV: Investible funds, at market value, of the industry rose by June 2000 to

over Rs 1, 10,000 crore with UTI having 68% of the market share. During 1999-

2000 sales mobilization reached a record level of Rs 73,000 crore as against Rs

31,420 crore in the preceding year. This trend was, however, sharply reversed in

2000-01. The UTI dropped a bombshell on the investing public by disclosing the

NAV of US-64-its flagship scheme as on December 28, 2000, just at Rs 5.81 as

against the face value of Rs 10 and the last sale price of Rs 14.50. The disclosure

of NAV of the country’s largest mutual fund scheme was the biggest shock of the

year to investors. Crumbling global equity markets, a sluggish economy coupled

with bad investment decisions made life tough for big funds across the world in

2001-02. The Indian mutual fund industry has stagnated at around Rs 1, 00,000

crore assets since 2000-01. May 3, 2002, stood at Rs 11,86,468 crore. Mutual

funds assets under management (AUM) form just around 10% of deposits of

SCBs. The AUM of this sector grew by around- 60% for the year ending March

2002.

39



Promotion techniques used by mutual fund companies to fight their competitors:

1. Get in touch with Customers

Mutual fund companies directly contacts the customers through various databases.

Then the companies convince the client to invest in their mutual fund. Many of

the times due to promotion the customers also contact RMF for investment.

2. Online Investment:

Companies Web sites allow customers to invest online. However, the customer

must have an account with the banks companies have partnered with. For

example, Prudential ICICI Mutual Fund allows customers to buy funds online if

he has a banking account with any of the following banks: Centurion Bank,

HDFC Bank, ICICI Bank, IDBI Bank and UTI Bank.

3. Through Distributors:

Companies sell its products through various distribution channels. The distributor

in turn gets a variable commission from the Companies. The distributors have a

client base of their own in which they promote the mutual fund.

4. Through Banks:

AMC is sister concern of the bank example IDFC Mutual Fund is a sister concern

of IDFC BANK. This AMC aggressively promote their mutual fund to their client

and develop an interest in them to invest in mutual fund in order to get higher

returns.

5. Through online finance portals:

Some of the AMCs sell their Mutual Fund through online trading account

example IDFC

Direct sell funds online through online trading account. But the client must have a

trading account with them. Some of the AMCs which sell their product through

online trading accounts are:

40



IDFC Securities

RMF Direct

Kotak Street

6. Through Advertisement:

Each companies AMCs spends a lot of money in order to advertise for its Mutual

Fund. The amount spend is high in case New Fund Offers. Various mediums of

advertisement use are given below:

Television

Radio

Print Media

Hoardings

7. Online Blogs:

Companies promote their product through online blogs. They advertise their

product on various online sites.

8. Telephonic calls:

Almost all the distributors promote the Mutual Fund with the help of telephone.

They have the phone numbers of existing clients and potential clients. A trained

person makes a call to the clients and promotes the Mutual Fund.

Companies ensure retailer to sell their mutual fund:

After the ban on entry load from 1 August 2009, the mutual fund industry has seen

a massive outflow of investments even as the bull market continued. Companies and

other mutual find companies are in competition to organize offers for its

distributors, hoping to influence them to sell their schemes to the public. Recently,

Reliance Mutual Fund took some of its distributors to Kashmir while IDFC took them to

Kerala for a long weekend. According to distributors, Templeton has a scheme wherein

41



any distributor who achieves his target is entitled to a foreign trip. Funnily, the number of

junkets have increased so much that they are becoming counter-productive. Some large

distributors are sick and tired of such frequent fly-offs. According to sources, one of the

frustrated distributors returned to Mumbai mid-way from his Kashmir junket. So far, it

was deducted from investors’ money, but the regulator has now come down heavily on

AMCs and is preventing the fund industry from making investors pay for such

extravaganzas. So AMCs are supposed to be bearing the expenses on their own. “Earlier,

AMCs were debiting the expenses of junkets to the schemes but now they have to pay out

of their pockets. In remains to be seen whether irrespective of cumbersome rules and

regulations and poor performance, the distributors, bribed by lavish junkets, would be

able to push fund products down the throats of the investing public. Interestingly,

Companies selling mutual funds are also in the same game. “Most of the brokers are

selling their products today. If a broker gets Rs1 crore sale of mutual fund business, he or

she gets a free trip to Malaysia. Everyone is getting tempted to go on a foreign trip,” said

a distributor.

RECENT TRENDS FOR MUTUAL FUND INDUSTRY

The ban on entry load on mutual fund products could impact RMF in terms of profitability and increase their sales level. The Securities and Exchange Board of India

(Sebi) has banned the entry load charge on mutual fund products from August 1. Now,

Reliance Mutual Fund has to negotiate with customers for commission, which is to be

paid through a different cheque. "The industry is likely to witness consolidation as

Reliance Mutual Fund (RMF) may not be able to accommodate the acute profit and loss

stress and also not able to simply increase their sales level. Within equity, the

prevalence of closed-ended funds will increase, with RMF driving for low churn

ratios." For the move to be successful, business model of the RMF has to be overhauled.

Before entry load exemption, their mutual fund system, the intermediaries (distributors)

would more interest in selling mutual funds. This will in turn increase profits of mutual

fund houses, which will then charge higher trail and asset management fees.

42



Particular 2008 (With entry load) 2009 (Without entry load)

Sale of Investment 100,069,699 117,068,389

Net sale of investment of Reliance Mutual Fund

100,069,699

117,068,389

90,000,000

95,000,000

100,000,000

105,000,000

110,000,000

115,000,000

120,000,000

2008 With entr load 2009 Without entr load

IDFC sees little financial impact on his business. IDFC says that, after ban of entry load,

selling mutual funds would not have made sense. According to IDFC, “it’s not possible toask clients for separate cheques every month if they opt for mutual funds via a systematic

investment plan (SIP). After the entry load ban, IDFC has shifted their small clients

online. IDFC is using mutual funds to acquire new customers and later cross-sell

them other products. IDFC, on the other hand, has seen their margins shrink after

the entry load ban and decrease in sales level. They had to pay intermediaries

commission from their pocket. To save costs, IDFC is also working on technology

platforms to enable online transactions at every distributor’s website. Intermediaries say

Reliance Mutual Fund and IDFC are about to implement this. IDFC and RMF feel that

in the beginning the profitability is likely to take a hit, not only due to the ban on

entry load, but also due to the increased spend on marketing, distribution and

administrative expenses. Barely six months into the ‘no-entry load’ era for the mutual

fund industry, is the sector witnessing a huge tectonic shift with distributors shying away

43



from the industry and opting to sell more lucrative products under the insurance and post

office fold. The trend could inflict serious damage to the long-term prospects of the

mutual fund industry and reduce the participation of retail investors to whom the industry

was intended to principally cater to, say industry participants.

Particular 2008 (With entry load) 2009 (Without entry load)

Sale of Investment 110,201,544 119,100,345

Net sale of IDFC mutual fund

110,201,544

119,100,345

104,000,000

106,000,000

108,000,000

110,000,000

112,000,000

114,000,000

116,000,000

118,000,000

120,000,000

2008 with entr load 2009 without entr load

After the ban on entry load, RMF and IDFC found themselves deprived of the money

they made for wooing a customer to an MF scheme. The entry load was as much as 2.25

per cent or more for equity schemes. According to RMF, “Yes, there has been poaching.

But, everyone is gaining and losing customers at the same time. The ban on entry load on

mutual funds (MFs) has struck its first blow to the asset management industry, with the

government-run India Post stopping the distribution of MF schemes through its

designated post offices. This is significant. In recent months, the war to gain customers

has turned ugly in the wake of the ban on entry load from August 1, 2009. Industry

sources said agents of some bigger distributors were poaching customers of smaller ones,

getting them to sign a form for transferring their account. Faced with a serious problem,

44



RMF and IDFC approached Amfi for a solution. The circular, issued on May 7, mandated

that fund houses need not pay trail commission to either the old or the new distributor.

Instead, the amount should be kept in a separate account and used for investor education.

The existing retailer, consequently, was earning his 2.25 per cent load every month from

the AMC. Such customers are told by rival agents that shifting will ensure a saving of

2.25 per cent a month. And, those not paying the entry load are offered better service.

Retailer will not sell mutual funds until they get some clarity on entry load. They will see

how the issue unfolds over the next few weeks. The final decision will depend on how

Sebi settles the issue without really hurting the distributor,” a senior official at India Post

told ET. Then, the transfer letter signed by the customer is sent to the RMF. The IDFC in

turn, issues a letter to the old distributor, saying the ‘broker code’ has been changed. Infact, industry sources said some fund houses that sought a reason for the change, were

sent transfer letters with the customer’s signature with an additional reason filled by the

sales people. The method is something like this. Approach a customer of a small broker

and tell him he’s not being serviced properly. For instance, many customers were not

aware of the ban on entry load and were carrying on with their systematic investment

plans (SIPs). But with ban on entry load, retailers are likely to take a hit as some of the

players believe that it will be very difficult to convince investor to pay a fee for the

service given.

Many investors seem to be of the view that they have “missed the bus” and would wait

for a correction before returning in large numbers. The fact that the markets have been

moving in a relatively narrow band since August hasn’t helped create demand in the past

few months either. With the market regulator now allowing the purchase of mutual fund

units through stock brokers, reach would be wider. Besides, a common online trading

platform for mutual funds is expected to be available in less than six months. While these

factors will improve access, flows will largely depend on how the market performs. It

finds that 87% of investors with investments less than Rs 1 lakh have redeemed equity

funds at a profit. In contrast, it has been the NFOs that have caught the investors on the

wrong foot. While 49% of NFO investments have been redeemed at loss, 22% have been

redeemed at a 'minor' profit. Customers continue to dominate the equity mutual fund

45



industry with over 90% of investment volumes. Before the ban on entry load, investors

paid an entry load of 2 to 2.25% at the time of investing which covered the asset

management companies' selling and distribution expenses, commission to distributors.

Now, an investor will receive units for the entire amount invested in schemes. They can

now decide the commission payable to distributors in accordance with the level of

service.

46



4. FINDINGS AND ANALYSIS

Personal Information:

Name: - ____________________________________________________ Address: - ____________________________________________________

____________________________________________________

Q.1 What is your age?

□ 16-23 □ 24-31

□ 32-49 □ More than 50 Years

9

2 1

1 7

3

0

5

1 0

1 5

2 0

2 5

A G

S e rie s

S e r ies 1 9 2 1 1 7 3

1 6 -2 3 2 4 - 3 1 3 2 -4 9 > 5 0

Out of the 50 respondents, 9 are of the age group 16-23 years



Out of the 50 respondents, 3 are of the age group >50 years

47



Q.2 What is your occupation?

□ Salaried □ Retired

□ Professional □ Self employed

Out of the 50 respondents, 20 are Salaried

Out of the 50 respondents, 5 are Retired

Out of the 50 respondents, 15 are Self Employed

Out of the 50 respondents, 15 are Professional

Q.3 What is your salary range?

48



□ Less than 2 lakh □ 2 lakh – 5 lakh

□ 5 lakh – 10 lakh □ More than 10 lakh

From the above table, Salary range of 15 respondents are less than 2 lakh and salary

range of 20 respondents are 2 lakh to 5 lakh, 10 respondents are 5 lakh to 10 lakh and rest

ranges goes to more than 10lakh.

49



Q.4 Do you invest in capital market?

□ Yes □ No

From the above table, out of 50 respondent, 40 respondents wants money invest in capital

market and rest 10 respondents says that no need it.

50



Q.5 Are you aware about what is a Mutual Fund?

□ Yes □ No

From the above table, out of 50 respondent, 45 respondents are aware about what is

mutual fund and rest respondents goes to not aware about what is mutual fund.

51



Q.6 If yes, do you invest in any of the followings:-

□ Fixed deposits □ Insurance

□ Shares □ Mutual funds

Shares emerged to be the most preferred choice of the investors for investment (preferred

by 10 respondents), followed by mutual fund and insurance for investment (Preferred by

30 respondent) and rest goes for Bank Fixed Deposits (preferred by 10 respondents).

52



Q.7 What is your expected rate of return for your ideal investment?

□ 5-10 % □ 11-14 %

□ 15-20 % □ 21-40 %

From the above table comes to know that 15 respondents expected 5-10% rate of return

for your ideal investment and 10 respondents goes for 11-15% and rest respondents goes

for 15-40% rate for return for your ideal investment.

53



Q.8 What is the source of information for your investments?

□ Friends/Family □ Newspapers

□ Internet □ Recommended by your Bank

From the above table comes to know that 15 respondents says friendly/family is source of

information for your investment and other 10 respondents goes for newspaper and 15 for

internet and rest for recommended by your bank.

54



Q.9 In which type of Mutual fund do you typically invest in?

□ Equity □ Hybrid

□ Debt

From the above table comes to know that 35 respondents agrees that equity mutual fund

is typically investment and others goes to debt and hybrid.

55



Q.10 What is the principal reason behind making investments in the market?

□ Children education □ House

□ Retirement □ Recommended by your Bank

Out of 50 respondents, 20 respondents agrees that children education reason behind

making investments in the market and 15 respondents agrees that house reason behind

making investment in the market and last goes to 10 for retirement and 5 for

recommended by bank.

56



Q.11 What are the reasons for not investing in the Mutual Funds?

□ High risk □ Huge investment

□ No expertise

From the above table comes to know that 15 respondents agrees high risk reasons for not

investment in the mutual fund and 10 go to huge investment and last 25 for not expertise.

57



5. RECOMMENDATIONS

Following recommendations are being made on the basis of the findings of the study:

1. Role of agents in the distribution of mutual fund products are very

important. More than 90% of the investors are investing through agents. Mutual

fund houses should train these agents and update their knowledge and skills , so

that they can guide and convince the investors in better way. They should also try

to develop alternate channels of distributors to increase their reach. As seen from

the study that around 6% investors are investing directly. For the growth of

mutual funds industry, the development of channels i.e retail agents, financial

advisors and distribution companies are very important. Mutual funds should also

explore the possibilities of selling MF products through Banks, Post Offices,

Rural & Urban Co-operative Banks to increase their reach and expand their

market.

2. Investors invest in the mutual fund products to get higher returns on

their investment and tax benefits on their investment/income. Mutual fund houses

should manage their assets with least volatility and fluctuations in their returns.

They should also convince the govt. for continuing the tax benefits till the time

industry gets maturity. Stable mutual fund industry will help to keep stable capital

market also.

3. Investors rate shares and mutual fund products as the highest provider

of returns. They also rate these products very low from safety point of view.

Mutual funds should segment their customers and adopt niche marketing strategy.

4. Mutual fund investors are generally very return sensitive and they

give maximum importance to the return on their investment. Quality of sales and

after sales service is regarded the second most important factor for investment.

The convenience of location is the third. Therefore, the mutual fund houses

should always try to give better returns by managing their assets more

58



professionally. Service is the second most important factor for selection of MF

products. Therefore, if the returns of two mutual fund houses are similar than the

chances of selecting a fund house which give better service is more. Therefore,

mutual fund houses to introduce the just in time service concept.

5. Convenience of investment or location is also important. Mutual fund

houses should open their offices or service centers near to their customers. They

should open more outlets just as banks for the convenience. Technology can help

in this regard. They can use internet/intranet for their transactions. It will save

their time and cost and improve the service standard and more convenience to

their customers.

6. Companies should find out the causes for loosing the investors

preference. They should change their marketing strategy, if required.

Again applying the entry load on mutual fund will not acceptable by an investor because

ban the entry load now work as remedy for customer and make them savier about their

investments. This means an investor will not have to pay the entry load of 2.25% for

equity funds unless he avails the services of a distributor. So, hypothetically, if an

investor puts Rs 1,000 in a scheme and the entry load is 2.25%, he would receive units

worth Rs 977.5 only (2.25% of Rs 1,000), thereby impacting his investment’s net asset

value (NAV). So in the point of view of investor, entry load is not acceptable by them.

The retail distributors, the fund houses to some extent and the relationship managers of

banks who made a neat commission out of their advice to investors on which funds to

buy and sell. They will now have to negotiate with the clients and decide on a fee (smart

investors can negotiate this to their own benefit) whereas initially they used to get a fixed

brokerage from the fund house. The taxation angle, though, is also not very clear. Initially

service tax was deducted from the brokerage and the balance was paid to the distributor.

Now it is still not clear how the service tax will be paid. Whether the distributor will

collect that amount from the investor and then pay the tax or is there any other

methodology still stands to be clarified. If distributors have to pay a service tax, then they

will have to take a service tax number. This in turn can lead to distributors asking fees in

59



the form of cash in order to avoid the service tax. The retail distributors may reduce or

may entirely stop selling mutual funds as it may no longer be lucrative to them. This will

hamper the business of fund houses.

Because now that there will be no entry load on the money that you will invest in any

mutual fund scheme all the money that you invest will be used to buy mutual fund units

unlike earlier when 2.25 per cent would be lopped off and the rest invested. The table

below illustrates this better.

As seen in the illustration above because of no entry load on their investments they will

make Rs 9,102 more than what they would have made otherwise. According to the new

ruling, investors will decide with the distributor, an upfront commission or fees to be paid

for their advice and services.

60



6. CONCLUSION

An investor normally prioritizes his investment needs before undertaking an investment,

So different goals will be allocated to different proportions of the total disposable

amount. Investments for specific goals normally find their way into the debt market as

risk reduction is of prime importance, this is the area for the risk-averse investors and

here, Mutual Funds are generally the best option. One can avail of the benefits of better

returns with added benefits of anytime liquidity by investing in open-ended debt funds at

lower risk, this risk of default by any company that one has chosen to invest in, can be

minimized by investing in Mutual Funds as the fund managers analyse the companies

financials more minutely than an individual can do as they have the expertise to do so.

Moving up the risk spectrum, there are people who would like to take some risk and

invest in equity funds/capital market. However, since their appetite for risk is also

limited, they would rather have some exposure to debt as well. For these investors,

balanced funds provide an easy route of investment, armed with expertise of investment

techniques, they can invest in equity as well as good quality debt thereby reducing risks

and providing the investor with better returns than he could otherwise manage. Since they

can reshuffle their portfolio as per market conditions, they are likely to generate moderate

returns even in pessimistic market conditions.

Next comes the risk takers, risk takers by their nature, would not be averse to investing in

high-risk avenues. Capital markets find their fancy more often than not, because they

have historically generated better returns than any other avenue, provided, the money was

judiciously invested. Though the risk associated is generally on the higher side of the

spectrum, the return-potential compensates for the risk attached.

The Securities and Exchange Board of India’s (Sebi) decision to ban the deduction of

entry loads by asset management companies hasn’t affected inflows into equity mutual

funds as badly as some had feared. Industry sources say to get access to customers of

other distributors, data of fund houses have been up for sale. For instance, the database of

61



customers in a new fund offer (NFO) was for sale for Rs 1 lakh. The main aim to increase

the exit load was only to make up for losses from the ban on entry load. But now with

Sebi bring the parity among all the classes of unit holders; they can't do much at that

end." Until now, these firms typically charged up to 1% exit load for retail investors for

premature redemption and big ticket investors who invested above Rs 5 crore did not

have to pay any exit load.

There are still lots of ifs and buts as SEBI is still to issue complete guidelines. But this

preliminary guideline too is a revolutionary step in itself as investors will now be paying

for the right kind of advice. The system of pass back wherein distributors used to pass on

their incentives to the investors for inducing the investors to invest in a particular fund to

meet their personal targets will also be done away with. Now investors can gain access to

well-informed and proper advisors, financial planners to get proper advice for their

investments in accordance with the fee that they pay. Last year SEBI had done away with

entry load in cases where the investors directly invested in mutual funds without going

through an agent or a distributor. With the new ruling in place, investors will be free to

negotiate the commission with their distributor and if they are smart negotiators they may

even pay nil commission on their investments. Good news for some, not so good news

for others. Well let us have a look as to who stands to benefit and who stands to lose out

and the implications of SEBI's decision for investors, distributors and mutual fund

companies.

62



7. REFERENCES

BOOKS :

• Bhattacharya, P. C and Sivasubramonian, M. N (2003), “Financial development

and economic growth in India: 1970-71 to 1998-99”, Applied Financial

Economics, 13, 905-09.

• Chang, T (2002), “ Financial development and economic growth in mainland

China : a note on testing demand following or supply leading hypothesis” ,

Applied Economics Letters, 9,869-73

• Demirguc, P.D and Maksimovic, V. (1996), “Financial constraints, use of funds

and firm growth: an international comparison” , Working paper no 1671, World

bank.

• Rani, P. Geetha (2007) 'State Finance Commissions and Rural Local Bodies.

Devolution of Resources.' Economic & Political Weekly, June 19-25.

• Rao. S.L. (1999) 'Reforming State Enterprises.' (Ed) NCAER, New Delhi.

Ravallion, Martin (2001) 'What is needed for a More Pro-Poor Growth Process in

India?' Economic & Political Weekly, March 25.

• Reddy. Y.V. (2006a) 'Financial Sector Reform: Review and Prospects.' Key note

address at the Conference on 'Growth, Governance and Empowerment: The

Future of India's Economy', at University of California, Santra Cruz on Nov. 20,

1998. Published in RBI Bulletin Jan, 1999.

• Engle, R.F. and C.W.J. Granger. (1987). “Cointegration and error correction:

representation, estimation and testing”. Econometrica, 55, 251-276.• Evans,P.(1995), “How to estimate growth equations consistently” , paper

presented at the 7th world congress of the Econometric Society, Tokyo, 1995.

• Granger, C.W.J. (2006). “Investigating causal relations by econometric models

and cross spectral methods”. Econometrica, 37 , 428-438.

63



• Habibullah, M. S. (1999), “Financial development and economic growth in Asian

countries: testing the financial-led growth hypothesis”, Savings and Development,

23, 279-290.

• Harris, R. D. F (1997). “Stock markets and development: a reassessment”,

European Economic Review, 41, 139-46.

• Johansen, S. and K. Juselius. (1990). “Maximum likelihood estimation and

inference on co integration-with application to the demand for money”. Oxford

Bulletin of Economics and Statistics, 52, 169-210.

• Levine, R., and Zervos, S. (1998), “Stock markets, banks and economic growth,”

American Economic Review, 88,537-58

• Levine, R., and Renelt, D. (1992), “A sensitivity analysis of cross country growth

regressions” , American economic Review, 82, 942-63.

• Patrick, H. T. (1966), “Financial Development and Economic Growth in

Underdeveloped Countries”, Economic Development and Cultural Change, 14,

174-189.

• [26] Phillips, R. C. B. and P Perron. (1988). “Testing for a unit root in time series

regression”. Biometrika, 75, 335-346.

• Robinson, J. (1952), “The generalization of the general theory”, The Rate of

Interest and Other Essays, McMillan, London.

• Schumpeter, J. A.(1911). “The Theory of Economic Development” , Cambridge,

Mass : Harvard University Press

• Toda, H.Y. and P.C.B. Phillips. (1993). “Vector Autoregressions and Causality”,

Econometrica, 61, 1367-1393.

• Endo, Tadashi. 1998. The Indian Securities Market — A Guide for Foreign and

Domestic Investors. Vision Books. India.

• Gupta, L.C. 1998. “What Ails the Indian Capital Market?” Economic and

Political Weekly, 23 (29-30).

• Misra, B. M. 1997. “Fifty Years of the Indian Capital Market: 1947-1997 .” In

Banking and Financial Sector Reforms in India, Vol. 6, edited by Kapila, Raj and

Uma Kapila.

64



• Rangarajan, C. 1997. “Activating Debt Markets in India.” Reserve Bank of India

Bulletin. October.

• Rangarajan, L.N., “Kautilya: The Arthashastra”, Penguin Books, New Delhi,

1987

• Ravi Kathpalia, (ed), “International Conference on Financial Management and

Accountability in the Public Sector: Strategies for Managing Change”, Oxford

Publication., New Delhi, 2001.

• Srinivasan, T.N. (2006) 'Eight Lectures on India's Economic Reforms.' Oxford.

• Srivastava, D.K. (1999) 'Budget Processes and Expenditure Management in

India.' Paper in the Training Material. See NIPFP (2007).

JOURNALS

• Agrawalla, R. K. and Tuteja, S. K. (2007), “Causality Between Stock Market

Development and Economic Growth : A Case Study of India” , Journal of

Management Research, 7, 158-168.

• Arestis, P., Demetriades, P. O. and Luintel. K. B. (2001). “Financial development

and economic growth: the role of stock markets”. Journal of Money, Credit and

Banking, 33, 16-41.

• Beck, T. (2002), “Financial development and international trade : is there a link”,

Journal of International Economics,57,107-131

• Chakraborty, I. (2008). “Does financial development cause economic growth?

The case of India”, South Asia Economic Journal , 9, 109-139.

• Jha, R. and S. Mittal, 1999, Savings, Investment and Marginal Effective Tax

Rates in India, International Journal of Development Banking, 8, no.1, pp. 3-12.

• Demetriades, P. O. and Hussein, K. (1996), “Does financial development cause

economic growth?” Journal of development Economics 51, 387-411.

• Dickey, D.A. and W.A. Fuller. (1979). “Distribution of the estimation for

autoregressive time series with a unit root”. Journal of American Statistical

Association, 79, 355-367.

65



• Fry, M.J.(1995), “Money ,interest and banking in economic development”,

Journal of share market issue, 34, 322-346

• King, R.G and Levine, R. (1993a), “Finance and growth: Schumpeter might be

right,” Quarterly Journal of Monetary Economics, 108,717-738.

• King, R.G and Levine, R. (1993b), “Finance, entrepreneurship and growth”

Journal of Monetary Economics, 32,513-542.

• Kletzer, K. and Pardhan, P. (1987), “Credit markets and patterns of international

trade,” Journal of Development Economics, 27,27-70.

• Levine, R., Loyola, N. and Beck, T.(2000), “ Financial intermediation and growth

: causality and causes,” Journal of Monetary Economics, 46,31-77.

• Lucas, R. E. (1988), “On the mechanics of economic development”, Journal of

Monetary Economics,22,3-42.

• Pesaran, M. H. and Smith, R.(1995), “Estimating long run relationship from

dynamic heterogeneous panels” , Journal of Econometrics, 68, 79-113.

• Toda, H.Y. and T. Yamamoto. (1995). “Statistical inference in vector

autoregressions with possibly integrated processes”. Journal of Econometrics, 66,

225-250.

•Reddy, Y. V. 1997. “The Future of India’s Debt Market.” Reserve Bank of India Bulletin, November. Reserve Bank of India. Journal on Currency and Finance,

various issues.

• Securities and Exchange Board of India. 1995/96 and 1996/97. Journal on. India:

SEBI.

• Shah, Ajay, and Susan Thomas. 1997. “Securities Markets— Towards Greater

Efficiency.” In India Development Journal , edited by K. Parikh. UK: Oxford

University Press.

Websites References:

• http://mpra.ub.uni-muenchen.de/5050/,

66



• http://www.google.co.in/search?

source=ig&hl=en&rlz=1G1GGLQ_ENIN333&q=indian+stock+market+analysis

&meta=lr%3D&aq=3&oq=Indian+Stock+market

• http://www.crnindia.com/

• http://www.crnindia.com/stockfutures.htm

• http://www.sharesdaily.in/

• http://www.bookprofit.com/

• http://business.mapsofindia.com/india-market/stock-analysis.html

• http://www.bullishindian.com/

• http://www.chanakyanipothi.com/

•

http://www.indiastockmarket.com/ISM/• http://www.sharegyan.com

• http://www.sharemasterindia.com/

• http://74.125.153.132/search?

q=cache:MTphI8Na5vYJ:www.igidr.ac.in/~money/Chittedi_Krishna.pdf+indian+

stock+market+analysis&cd=20&hl=en&ct=clnk&gl=in

• http://www.topnews.in/indian-stock-market-analysis-nirmal-bang-securities-

2166275

• http://www.esignal.com/ads/esignal/default.asp?CPID=KNC-O6O174466501

• http://www.esignal.com/ads/esignal/default.asp?CPID=KNC-O6O174466501

• http://www.accessmylibrary.com/coms2/summary_0286-14052300_ITM

• http://www.trade2win.com/boards/asia-pacific-stocks/22738-indian-stock-market-

analysis.html

• http://finance.indiamart.com/india_business_information/sebi_secondary_market.

html

67



8. ANNEXURE

QUESTIONNAIRE

Personal Information:

Name: - ____________________________________________________

Address: - ____________________________________________________

____________________________________________________

Q.1 What is your age?

□ 18-25 □ 26-35

□ 36-45 □ More than 46Years

Q.2 What is your occupation?

□ Salaried □ Retired

□ Professional □ Self employed

Q.3 What is your salary range?

□ Less than 2 lakh □ 2 lakh – 5 lakh

□ 5 lakh – 10 lakh □ More than 10 lakh

68



Q.4 Are you aware about what is a Mutual Fund?

□ Yes □ No

Q.5 Do you invest in capital market?

□ Yes □ No

Q.6 If yes, do you invest in any of the followings:-

□ Fixed deposits □ Insurance

□ Shares □ Mutual funds

Q.7 What is your expected rate of return for your ideal investment?

□ 5-10 % □ 11-14 %

□ 15-20 % □ 21-40 %

Q.8 What is the source of information for your investments?

□ Friends/Family □ Newspapers

□ Internet □ Recommended by your Bank

Q.9 In which type of Mutual fund do you typically invest in?

□ Equity □ Hybrid

□ Debt

69



Q.10 What is the principal reason behind making investments in the market?

□ Children education □ House

□ Retirement □ Recommended by your Bank

Q.11 What are the reasons for not investing in the Stock Market/Mutual Funds?

□ High risk □ Huge investment

□ No expertise

final thesis mutual fund-final 21

Documents