Summer Internship Project ReportOn

“INVESTORS PERCEPTION TOWARDS INVESTMENT IN MUTUAL FUND IN ODISA MARKET WITH SPECIAL REFERENCE TO BAJAJ CAPITAL”

ByPabita Mishra

Registration No: BIM0611BM021

work carried at

Bhubaneswar

Bhavan’s Centre for Communication & Management , Bharatiya Vidya Bhavan Bhubaneswar

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CONTENTSParticulars Page   DECLARATION 4   CERTIFICATE FROM INTERNAL GUIDE 5   CERTIFICATE FROM EXTERNAL GUIDE 6   CERTIFICATE FROM APPROVAL 7   ACKNODLEDGEMENT 8   EXECUTIVE SUMMARY 9-12   OBJECTIVES 13   COMPANY PROFILE 14-21

   SWOT ANALYSIS 22

REVIEW OF THE LITRETURE 23-45

 RESEARCH METHEDOLOGY 46 DATA INTERPRETATION 47-56 

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FINDINGS AND SUGGESTIONS 57-58   CONCLUSION 59 BIBLIOGRAPHY 60

DECLARATION

I hereby declare that this project report titled “Investor Perceptions towards Mutual Fund Investments in the Odisha Market with special reference to Bajaj Capital”, submitted by me under the direct supervision and guidance of Prof. Siddharth Shankar Kanungo, Bharatiya Vidya Bhavan, Bhubaneswar and Mr. Anupam Mohanty, Marketing Manager, Bajaj Capital, Bhubaneswar is my own work and has not been submitted to any other university or institution or published earlier.

Pabita MishraRegistration. No.: BIM0611BM021 Date: ............................

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MY EXPERIENCE AT SIP

QUESTIONNAIRE

CERTIFICATE FROM THE INTERNAL GUIDE

This is to certify that the report titled “Investor Perceptions towards Mutual Fund Investments in the Odisha Market with special reference to Bajaj Capital”, submitted by Ms. Pabita Mishra bearing Registration. No. BIM0611BM020, of Bhavan’s Centre for Communication & Management, Bharatiya Vidya Bhavan, Bhubaneswar, towards partial fulfillment of the requirements for the award of Post Graduate Diploma in Management (PGDM) is a bonafide work carried out by her under my direct supervision and guidance.

Prof. Siddharth S KanungoBharatiya Vidya Bhavan, Bhubaneswar Date: ............................

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CERTIFICATE FROM THE EXTERNAL GUIDE

This is to certify that the report “Investor Perceptions towards Mutual Fund Investments in the Odisha Market with special reference to Bajaj Capital”,, submitted by Ms. Pabita Mishra bearing Registration. No. BIM0611BM021, of Bhavan’s Centre for Communication & Management, Bharatiya Vidya Bhavan, Bhubaneswar, towards partial fulfilment of the requirements for the award of Post Graduate Diploma in Management (PGDM) is a bonafide work carried out by her under my direct supervision and guidance.

Mr Annupam MohantyBajaj Capital

Date: ............................

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CERTIFICATE OF APPROVAL

This is to certify that the report titled “Investor Perceptions towards Mutual Fund Investments in the Odisha Market with special reference to Bajaj Capital”, Submitted by Pabita Mishra bearing Registration. No. BIM0611BM021 of Bhavan’s Centre for Communication & Management, Bharatiya Vidya Bhavan, Bhubaneswar Kendra, Orissa, towards partial fulfillment of the requirements for the award of Post Graduate Diploma in Management (PGDM) is a bonafide record of the work carried out by her under the guidance Prof. Siddharth S. Kanungo.

Vice Principal Director (Academics)

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ACKNOWLEDGEMENT

Before I going to the thick of I would like to add some heartfelt words. I owe a huge debt of thank and deep sense of gratitude to my learned guide Mr. ANUPAM MOHANTY[MANAGER]

and Mr. SAMBIT MOHANTY [BRANCH HEAD] at BAJAJ

CAPITAL, Bhubaneswar branch under whose guidance, supervision and encouragement the present study was undertaken and completed. Their sympathetic, accommodating and constructive nature remained a constant source of inspiration for me through the duration of this summer project. I am thankful to all personnel in BAJAJ CAPITAL for utmost co-operation and timely help extended by them for the completion of the project. My overriding debt is Prof. Sidharth Sankar Kanungo for providing me the opportunity to take up this project with BAJAJ CAPITAL.

(Pabita mishra)

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CHAPTER 1

EXECUTIVE SUMMARY

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EXECUTIVE SUMMARY

A Mutual Fund is common pool of money into which investor’s places their contributions that are to be invested in accordance with a started objective. The ownership of the mutual fund is thus join or “MUTUAL”; the fund is in the same proportion as the amount of the contribution made by him or her bears to the total amount of the fund. A mutual fund uses the money collected from investors to buy those assets which are specifically permitted by its stated investment objective. Thus, an equity fund would mainly buy debt instruments such as debentures, bonds, or government securities. It is these assets which are owned by the investors in the same proportion as their contribution bears to the total contribution of all investors put together.

Regulatory Body for Mutual Funds?

Securities Exchange Board of India (SEBI) is the regulatory body for all the mutual funds. All the mutual funds must get registered with SEBI.

What are the benefits of investing in Mutual Funds

There are several benefits from investing in a Mutual Fund:

Small investments: Mutual funds help you to reap the benefit of returns by a portfolio spread across a wide spectrum of companies with small investments.

Professional Fund Management: Professionals having considerable expertise, experience and resources manage the pool of money collected by a mutual fund. They thoroughly analyse the markets and economy to pick good investment opportunities.

Spreading Risk: An investor with limited funds might be able to invest in only one or two stocks/bonds, thus increasing his or her risk. However, a mutual fund will spread its risk by investing a number of sound stocks or bonds. A fund normally invests in companies across a wide range of industries, so the risk is diversified.

Transparency Mutual Funds regularly provide investors with information on the value of their investments. Mutual Funds also provide complete portfolio disclosure of the investments made by various schemes and also the proportion invested in each asset type.

Choice: The large amount of Mutual Funds offer the investor a wide variety to choose from. An investor can pick up a scheme depending upon his risk/ return profile.

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Regulations: All the mutual funds are registered with SEBI and they function within the provisions of strict regulation designed to protect the interests of the investor

What is NAV?NAV or Net Asset Value of the fund is the cumulative market value of the assets of the fund net of its liabilities. NAV per unit is simply the net value of assets divided by the number of units outstanding. Buying and selling into funds is done on the basis of NAV-related prices. The NAV of a mutual fund are required to be published in newspapers. The NAV of an open end scheme should be disclosed on a daily basis and the NAV of a close end scheme should be disclosed at least on a weekly basis

What is Entry/Exit Load?A Load is a charge, which the mutual fund may collect on entry and/or exit from a fund. A load is levied to cover the up-front cost incurred by the mutual fund for selling the fund. It also covers one time processing costs. Some funds do not charge any entry or exit load. These funds are referred to as ‘No Load Fund’. Funds usually charge an entry load ranging between 1.00% and 2.00%. Exit loads vary between 0.25% and 2.00%.For e.g. Let us assume an investor invests Rs. 10,000/- and the current NAV is Rs.13/-. If the entry load levied is 1.00%, the price at which the investor invests is Rs.13.13 per unit. The investor receives 10000/13.13 = 761.6146units. (Note that units are allotted to an investor based on the amountinvested and not on the basis of no. of units purchased).Let us now assume that the same investor decides to redeem his 761.6146 units. Let us also assume that the NAV is Rs 15/- and the exit load is 0.50%. Therefore the redemption price per unit works out to Rs. 14.925. The investor therefore receives 761.6146 x 14.925 = Rs.11367.10.

Are there any risks involved in investing in Mutual Funds?Mutual Funds do not provide assured returns. Their returns are linked to their performance. They invest in shares, debentures, bonds etc. All these investments involve an element of risk. The unit value may vary depending upon the performance of the company and if a company defaults in payment of interest/principal on their debentures/bonds the performance of the fund may get affected. Besides in case there is a sudden downturn in an industry or the government comes up with new a regulation which affects a particular industry or company the fund can again be adversely affected. All these factors influence the performance of Mutual Funds. Some of the Risk to which Mutual Funds are exposed to is given below:

Market risk If the overall stock or bond markets fall on account of overall economic factors, the value of stock or bond holdings in the fund's portfolio can drop, thereby impacting the fund performance.Non-market risk Bad news about an individual company can pull down its stock price, which can negatively affect fund holdings. This risk can be reduce by having a diversified portfolio that consists of a wide variety of stocks drawn from different industries.Interest rate risk Bond prices and interest rates move in opposite directions. When interest rates rise, bond prices fall and this decline in underlying securities affects the fund negatively.

Credit risk

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Bonds are debt obligations. So when the funds invest in corporate bonds, they run the risk of the corporate defaulting on their interest and principal payment obligations and when that risk crystallizes, it leads to a fall in the value of the bond causing the NAV of the fund to take a beating.

Regulation of Mutual fund in India

The Reserve Bank of India (RBI) has issued a set of guidelines in 1987 for bank sponsored Mutual funds. This was followed, in 1990, by stipulations for mutual funds from the ministry of finance, Government of India. In 1991, the government of India initiated the process of creating a common regulation for all mutual funds in 1991. In October 1991, the Securities and Exchange Board Of India (SEBI) issued guidelines for the formation of Asset Management Companies (AMCs) for Mutual funds A comprehensive set of guidelines was issued by the ministry of finance in February 1992. In 1993, the SEBI issued comprehensive mutual funds regulations. These frame work in 1996, which have been amended from time to time. The main Clements of the SBI regulatory mechanism of Mutual funds, other than the Unit trust of India, are:

1. Registration of mutual funds with SEBI.

2. Constitution and Management of mutual funds and operation of trusts.

3. Constitution and management of asset management company and custodian.

4. Schemes of mutual funds.

5. Investment objectives and valuation policies.

6. Inspection and audit.

7. Procedure for action in case of default.

Some of the provisions of the SEBI (mutual fund) Regulations, 1996 (as amended from time to time) have been summarized here under:

1. The sponsor, who wants to establish a mutual fund, should have a sound track record and a general reputation of fairness and integrity, I.e., must be in business of financial services for 5 years, and must have contributed at least 40% of the net worth of the asset management company.

2. A mutual funds is constituted in form of trust. The trust shall incorporate an Asset Management Company (AMC). The trustees shall ensure that the AMC has been managing the schemes independently of other activities.

3. Two-thirds of the trustees shall be independent persons and not be associated with the sponser.

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4. The trustees shall ensure that activities of the AMC are in accordance with the Regulations, 1996.

5. The trust shall periodically review the investors’ complaints recived and shall be redressed by the AMC.

6. The mutual fund shall appoint a custodian to carry out the custodial services for the schemes. The sponser or its associates shall not have 50% or more of the share capital of the custodian.

7. No schemes shall be launched by the AMC unless the offer document contains disclosures which are adequate in order to enable the investors to make informed investors to make informed investment decisions.

8. Advertisement in respect of every scheme shall be in conformity with the Advertisement code.

9. Every close-ended scheme shall be listed at a recognized stock exchange, or there will be a repurchase facility.

10. The close-ended schemes may be converted in to open-ended schemes under certain conditions. A close-ended schemes may be allowed to be rolled over if necessary disclosures about NAV, etc, are made to the unit holders.

11. In case of over-subscription for a new scheme, the applicants applying for upto 5,000 units shall be allotted full. The refund to applicants, ii any made within 6 weeks from the date of closure of the list.

12. No guaranteed return shall be provided in a scheme, unless such return is fully guaranteed by the sponcer or the AMC.

13. An open-ended scheme shall be wound up after the expiration of the fixed period, or in case, 75% of the unit holders decide so, after repaying the amount due to the unit holders.

14. The money collected under any scheme shall be invest only in transferable securities debts.

15. The mutual fund shall not borrow any money except to meet temporary liquidity needs and borrowing, if any, need not be more than 20% of NAV of the scheme, and for period of less than 6 months.

16. The funds of a scheme shall not be used in option trading or a carry forward transaction. However, derivatives can be traded by a mutual fund a recognised stock exchange for portfolio balancing.

17. A mutual fund can enter in to underwriting agreement.

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OBJECTIVE:-

To know the advantages of Mutual Fund for different age of people.

To know the performance of funds in the market in comparison of BSE – 100 and BSE – 30.

To knows the advantages of Systematic Investment Plan and advantages in comparison of lump-sum investments.

To know about all those calculations of Fund and BSE benchmark returns & risk and show the chart of performance of vis-à-vis benchmark .

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CHAPTER 2

COMPANY PROFILE

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COMPANY PROFILE

Bajaj Capital is one of India’s leading Financial Services companies offering Free Advice on Investments, Insurance, Tax Saving, Retirement Planning, Financial Planning, Children’s Future Planning and other services. We also have a wide range of products and services for Corporate, High Net worth Individuals, and NRIs… all under one roof.

At Bajaj Capital, we believe in dreaming big. Dreams inspire us to excel. They ignite hope and kindle in us the passion to stretch our limits. We also believe that nothing can or should stop us from realising our dreams… and financial constraints should be the last thing to stop anyone.

Four decades of excellence

For over four decades, we have been helping people realise their aspirations by helping them make their wealth grow, and plan their financial lives.Today, we are a one of the largest financial planning and investment advisory companies in India, with a strong presence all over the country. We take pride in serving our customers – both individual and institutional – and are known for our strong professionalism and work ethics.

Wide range of services

We offer a comprehensive range of services including financial planning and investment advice, and the entire gamut of financial instruments andinvestment products of almost all major companies, both public and private. In addition, we also provide investment assistance by helping you complete all the formalities, and help you keep regular track of your investments.

These services and products are delivered through our network of 134 Bajaj Capital Investment Centres located all over the country.We are also a SEBI-approved Category I Merchant Banker. We raiseResources for over 1,000 top institutions and corporate houses every year, and offer specialised services to Non-Resident Indian (NRIs) and High Net worth Clients.

THE HISTORY OF BAJAJ CAPITAL

Bajaj Capital has contributed to the growth of the Indian Capital Market at every step.

In 1965, we were the first to innovate the Companies Fixed Deposit. Today, we are playing an active role in the growth of the Indian Mutual Fund industry.We are also working closely with private insurance companies to deepen India’s insurance market.

What you can expect from us

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Sound, research-based advice

Unbiased, independent and need-based advice

Prompt, courteous service

Honest, ethical dealings

Accessibility

Here is a brief gist of our journey through the years.

1964

Bajaj Capital sets up its first Investment Centre™ in New Delhi to guideIndividual investors on where, when and how to invest.

India's first Mutual Fund, Unit Trust of India (UTI) is incorporated in the same year.

1965

Bajaj Capital is incorporated as a Company. In the same year, the company introduces an innovative financial instrument – the Company Fixed Deposit. EIL Ltd. (Oberoi Hotels, then known as Associated Hotels of India Ltd.) becomes the first company to raise resources through Company Fixed Deposits.

1966

Bajaj Capital expands its product range to include all UTI schemes and Government saving schemes in addition to Company Fixed Deposits.

1969

Bajaj Capital manages its first Equity issue (through an associate company) of Grauer & Wells India Ltd.; right from drafting the prospectus to marketing the issue.

1975

Bajaj Capital starts offering 'need-based' investment advice to investors, which would later be known as 'Financial Planning' in the investment world.

1981

SAIL becomes the first government company to accept deposits, followed by IOC, BHEL, BPCL, HPCL and others; thus opening the floodgates for growth of retail investment market in India. Bajaj Capital plays an active role in all the schemes as 'Principal Brokers'

1986

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Public Sector Undertakings (PSUs) begin making public issues of bonds MTNL, NHPC, IRFC offer a series of Bond Issues. Bajaj Capital is among the top ranks of resource mobilisers.

1987

SBI leads the launch of Public Sector Mutual Funds in India. Bajaj Capital plays a significant role in fund mobilisation for all these players.

1991

SBI issues India Development Bonds for NRIs. Bajaj Capital becomes the top mobiliser with collections of over US $20 million.

1993

The first private sector Mutual Fund – Kothari Pioneer – is launched, followed by Birla and Alliance in the following years. Bajaj Capital plays an active role and is ranked among the top mobilisers for all these schemes.

1995

IDBI and ICICI begin issuing their series of Bonds for retail investors. Bajaj Capital is the co-manager in all these offerings and consistently ranks among the top five mobilisers on an all-India basis.

1997

Private sector players lead the revival of Mutual Funds in India through Openended Debt schemes. Bajaj Capital consolidates its position as India's largest retail distributor of Mutual Funds.

1999

Bajaj Capital begins marketing Life and General Insurance products of LIC and GIC (through associate firms) in anticipation of opening up of the Insurance Sector. Bajaj Capital achieves the milestone of becoming the top 'Pension Scheme' seller in India and launches marketing of GIC's Health Insurance schemes.

2000

Bajaj Capital implements its vision of being a 'One-stop Financial Supermarket.' The Company offers all kinds of financial products, including the entire range of investment and insurance products through its Investment Centre. Bajaj Capital offers 'full-service merchant banking' including structuring, management and marketing of Capital issues. Bajaj Capital reinvents 'Financial Planning' in its international sense and upgrades its entire team of Investment Experts into Financial Planners.

2002

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The company focuses on creating investor awareness for Financial Planning and need-based investing. To achieve this goal, the company introduced the International College of Financial Planning. The graduates of this institute become Certified Financial Planners (CFPs), a coveted professional qualification.

2004

Bajaj Capital obtains the All India Insurance Broking Licence. Simultaneously, a series of wealth creation seminars are launched all over the country, making Bajaj Capital a household name.

2005

Bajaj Capital launches 360° Financial Planning, a software-based programme aimed at encouraging scientific and holistic investing.

2007

Bajaj Capital launches Stock Broking and Depository (Demat) Services.

2008

Bajaj Capital launches Just Trade, an online Platform for investing in Equities, Mutual Funds, IPO's.

MISSION, AIMS & OBJECTIVES

Bajaj Capital's Mission Statement

The focus of our organisation is to be the most useful, reliable and efficient provider of Financial Services. It is our continuous endeavour to be a trustworthy advisor to our clients, helping them achieve their financial goals.

Aims

To serve our clients with utmost dedication and integrity so that we exceed their expectations and build enduring relationships.

To offer unparalleled quality of service through complete knowledge of products, constant innovation in services and use of the latest technology.

To always give honest and unbiased financial advice and earn our clients' everlasting trust.

To serve the community by educating individuals on the merits ofFinancial Planning and in turn help shape a financially strong society

To create value for all stake holders by ensuring profitable growth.

To build an amicable environment that accords respect to every individual and permits their personal growth.

To utilise the power of teamwork to function as a family and build a seamless organisation.

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Why Invest Through Bajaj Capital

Wide range of products and services

41 years experience as Investment Advisors and Financial Planners.

More than eight lakh satisfied clients all over India

Countrywide network of 134 branches

Over 12,000 NRI clients across the globe

Personalised wealth management advice

24 x 7 online accessibility through www.bajajcapital.com

Strong team of qualified and experienced professionals including CAs, MBAs, MBEs, CFPs, CSs, Insurance experts, Legal experts and others.

SEBI-Approved Category I Merchant Bankers.

Group Co BCIBL is an IRDA-licensed Direct Insurance Broker.WHO’S WHO AT BAJAJ CAPITAL

Mr. K.K. Bajaj ( Chairman)

A visionary par excellence, a pioneer and a leader, Mr K.K. Bajaj has been instrumental in shaping Bajaj Capital’s emergence as one of India’s largest Investment Advisory companies.

He is a highly respected figure in the field of institutional and personal finance and Company FDs. His emphasis on honesty, ethics and values are the guiding principles of the organisation.Mr Bajaj is also a prolific writer and has written over 200 articles on diverse issues such as Personal Finance, Economic Affairs, and Health.

Mr. Rajiv Deep Bajaj ( Vice Chairman & Managing Director) A qualified Financial Planner, Mr Rajiv Deep Bajaj was the first to introduce the concept of Financial Planning in India. In fact, he is the Founding Chairman of the Association of Financial Planners (AFP). He is also amongst the first batch of 25 Certified Financial Planners (CFP tm) designation holders in India. A Post-graduate in Management and holder of an International Certificate for Financial Advisors from the Chartered Insurance Institute, London, Mr Rajiv Deep Bajaj has played a pivotal role in expanding Bajaj Capital's reach across the country. He has recently pursued an Executive MBA in International Wealth Management under an exchange program between University of Geneva, Switzerland and Carnegie Mellon University, Pittsburgh, USA.

His youthful energy, dynamic leadership, vision and 16 years strategic

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management experience in Banking, Financial Advisory, Insurance Broking and Financial Planning have strengthened Bajaj Capital.

The Media and Industry honchos have regularly acclaimed Mr. Rajiv Deep Bajaj for his strengths as a powerful orator and writer. His views on various Investment Strategy and Financial Planning-related issues are regularly flashed in some of the leading media entities like The Economic Times, Business Today, Star TV, CNBC and Aaj Tak. His personal life goal is to spread ‘Financial Education’ amongst the Indian masses in order to increase their knowledge base and shift their perspective from ‘Saving to Investing’.

Mr. Sanjiv Bajaj ( Joint Managing Director)

Mr. Sanjiv Bajaj started his career in 1995 as managerial trainee, worked on various projects which included developments at alternate channel ofdistribution like Broker's associations...etc. From here, he moved on toInvestment Advisory services, which included understanding the client's needs, and by using various tools of financial planning to offer them a solution to meet his requirements. Mr Sanjiv Bajaj is versatile personality with diverse areas of interest. He is a Post-graduate in Business Management with specialisation in Finance, and holds an International Certificate for Financial Advisors from the Chartered Insurance Institute, London. Thanks to him, Bajaj Capital is today the largest individual agent for LIC. Mr Sanjiv Bajaj has a keen interest in IT, and has played a major role in implementing the ERP software and Ecommerce activities in the company. Mr. Anil Chopra ( CEO & Director)

Mr. Anil Chopra is the Chief Executive Officer & Director of Bajaj Capital Limited, He joined the Company in 1984. Mr. Chopra has been instrumental in expanding the branch network of Bajaj Capital Ltd. all over India. A Chartered Accountant and a Certified Financial Planner, Mr Chopra is credited with introducing international accounting and HR practices in the organisation. His most valuable contribution, however, has been in building up a financially literate society and making Bajaj Capital a strong retail brand. He is considered an authority, and is widely sought after by the media for quotes on key developments in the industry.

THE SIGNIFICANCE OF OUR LOGO

Our logo depicts Lord Ganesha who is the source of all our values and ethics in business.

The large ears of Lord Ganesha remind us to hear more. We listen carefully to our clients to understand their needs.

The weight of the trunk on the mouth symbolises silence. We work silently, without blowing our own trumpet.

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The long trunk symbolises continuous exploration. We explore allavenues to provide the best investment opportunities for our clients.

The heavy posture of Ganesha symbolises stability. We help our clients to attain financial stability through wise investments.

Lord Ganesha is known as the remover of obstacles and bestower of prosperity. We emulate His example and try our best to help our clients attain prosperity by proper financial planning.

Our logo has a yellow background. Yellow is the colour of gold, which symbolises wealth. According to Vedic lore, it is also the colour associated with Brihaspati, the guru and counsellor of the Gods. We offer our clients sage counsel to make their wealth grow.

The letters are in red. Red is the colour rajas – symbolising power and incessant activity. It symbolises our aggressive quest for your well-being and happiness.

The white streak represents the trunk of Lord Ganesha. White is the colour of satva guna, and implies our selfless commitment to your lifelong happiness.

SWOT ANALYSIS

Strength

Having a huge of financial products. Having expert financial planning scenario so that the goals and dreams of a client is properly

visualised. Having transparent business strategies. Having a trust of more than 40 years. Having large number of branches across the country with a large number of employee and

clients.

Weakness Lack of knowledge among the employees

Lack of branches in small cities. Lack of publicity. Lack of awareness among the mindset of the people in small towns.

Opportunity

To introduce more segments of financial products. To penetrate in the rural market and create awareness in the mind set of the people of rural

area. To create more forms of publicity.

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To upgrade the process of financial planning

Threat

Entry of new competitors. The market risk that a client have in investing.

REVIEW OF THE LITRETURE

ALL FUNDS:-

A mutual fund is a common pool of money into which investors places their contributions that are to be invested in accordance with a stated objective. The ownership of the fund is thus joint or “mutual”, the fund belongs to all investors. A single investor’s ownership of the fund is in the same proportion as the amount of the contribution made by him or her bears to the total amount of the fund. A mutual fund uses the money collected from investors to buy those assets which are specifically permitted by its stated investment objective. Thus, an equity fund would buy mainly equity assets ordinary shares, preference shares, warrants etc. A bond fund would mainly buy debt instruments such as debentures, bonds, or government securities. It is these assets which are owned by the investors in the same proportion as their contribution bears to the total contributions of all investors put together.

ADVANTAGES OF MUTUAL FUNDIf mutual funds are emerging as the favourite investment vehicle, it is because of the many advantages they have over other forms and avenues of investing, particularly for the investor who has limited resources available in terms of capital and ability to carry out detailed research and market monitoring. The following are the major advantages offered by mutual funds to all investors:

• Portfolio diversification: Mutual funds normally invest in a well-diversified portfolio or securities. Each investor in a fund is a part owner of all of the fund’s assets. This enables him to hold a

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diversified investment portfolio even with a small amount of investment that would otherwise require big capital. • Professional Management: Even if an investor has a big amount of capital available to him, he benefits from the professional management skills brought in by the fund in the management of the investor’s portfolio. The investment management skills, along with the needed research into available investment options, ensure a much better return than what an investor can manage on his own. Few investors have the skills and resources of their own to succeed in today’s fast moving, global and sophisticated markets. • Reduction / Diversification of risk : An investor in a mutual fund acquires a diversified portfolio, no matter how small his investment. Diversification reduces the risk of loss, as compared to investing directly in one or two shares or debentures or other instruments. When an investor invests directly, all the risk of potential loss is his own. Fund investors also reduce his risk in another way. While investing in the pool of funds with other investors, any loss on one or two securities is also shared with other investors. This risk reduction is one of the most important benefits of a collective investment vehicle like the mutual fund.• Reduction of transaction costs: What is true of risk is also true of the transaction costs. A direct investor bears all the costs of investing such as brokerage or custody of securities. When going through a fund, he has the benefit of economies of scale; the fund pay lesser costs because of large volumes, a benefit passed on to its investors.

• Liquidity : Often, investors hold shares or bonds they cannot directly, easily and quickly sell. Investment in a mutual fund, on the other hand, is more liquid. An investor can liquidate the investment, by selling the units to the fund if open end, or selling them in the market if the fund is closed end, and collect funds at the end of a period specified by the mutual fund or the stock market.

• Convenience and flexibility : Mutual fund management companies offer many investor services that a direct market investor cannot get. Investors can easily transfer their holdings from one scheme to the other; get updated market information, and so on.

DISADVANTGES OF INVESTING THROUGH MUTUAL FUNDS:While the benefits of investing through mutual funds far outweigh the disadvanges, an investor and his advisor will do well to be aware of a few shortcomings of using the mutual funds as investment vehicles.• No control over costs:- An investor in a mutual fund has any control over the overall cost of investing. He pays investment management fees as long as he remains with the fund, albeit in return for the professional management and research. Fees are usually payable as a percentage of the value of his investments, whether the fund value is rising or declining. A mutual fund investor also pays fund distribution costs, which he would not incur in direct investing. However, this shortcoming only means that there is a cost to obtain benefits of a mutual fund services. However, this cost is often less than the cost of direct investing by the investors.

• No tailor-made portfolios:- Investors who invest on their own can build their own portfolios of shares, bonds and other securities. Investing through funds means he delegates this decision to the fund managers. The very high net worth individuals or large corporate investors may find this to be a constraint in achieving their objectives. However, most mutual funds help investors overcome this

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constraint by offering families of schemes-a large member of different schemes-within the same fund. An investor can choose from different investment plans and construct a portfolio of his choice.

• Managing a portfolio of funds : Availability of a large number of funds can actually mean too much choice for the investor. He may again need advice on how to select a fund to achieve his objectives, quite similar to the situation when he has to select individual shares or bonds to invest in.

TYPES OF FUND

There are many types of mutual fund available to the investors. However, these different types of funds can be grouped into certain classifications for better understanding. From the investor’s perspective, we would follow three basic classifications.Firstly, funds are usually classified in terms of their constitution-as-closed-end or open-end. The distinction depends upon whether they give the investors the option to redeem and buy units at any time from the fund itself (open end) or whether the investors have to await a given maturity before they can redeem their units to the funds( close end). Funds can also be grouped in terms of whether they collect from investors any charges at the time of entry or exit or both, thus reducing the investible amount or the redemption proceeds. Funds that make these charges are classified as load funds, and funds that do not make any of these charges are termed no-loan funds. Finally, funds can also be classified as being tax-exempt or non-tax-exempt, depending on whether they invest in securities that tive tax-exempt returns or not. Currently in India, this classification may be somewhat less important, given the recent tax exemptions given to investors receiving any dividends from all mutual funds. Under each board classification, we may then distinguish between several types of funds on the basis of the nature of their portfolios, meaning whether they invest in equities or fixed income securities or some combination of both. Every type of fund has a unique risk profile that is determined by its portfolio, for which reason funds are often separated into more or less risk bearing. We first look at the fund classifications and then understand the various types of funds under them.

1 MUTUAL FUND CLASSIFICATIONS

1.1. Open-end Vs. Closed –end Funds:An open-end fund is one that has units available for sale and repurchase at all times. An investor can buy or redeem units from the fund itself at a price based on the net asset value (NAV) per unit. NAV per unit is obtained by dividing the amount of the market value of the fund’s assets (plus accrued income minus the fund’s liabilities) by the number of units outstanding. The number of units outstanding goes up or down every time the fund issues new units or repurchases existing units. In other words, the ‘unit capital’ of an open and mutual fund is not fixed but variable. The fund size and its total investment amount go up if more new subscriptions come in from new investors than redemptions by existing investors, the fund shrinks when redemptions of units exceed fresh subscriptions. An open-end fund is not obliged to keep selling/issuing new units at all times, and many successful funds stop issuing further subscriptions from new investors after they reach a certain size and think they cannot manage larger fund without adversely affecting profitability. On the other hand, an open-end fund rarely denies to its investors the facility to redeem existing units, subject to certain obvious

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conditions. For example, redemption is only possible after the investor’s cheque for initial subscription has cleared, or until after any “lock-in period” specified by the fund is over, or only after the specified redemption period for collection of funds. Unlike an open-end fund, the “unit capital” of a closed-end fund is fixed, as it makes a onetime sale of a fixed number of units. Later on, unlike open-end funds, closed-end funds do not allow investors to buy or redeem units directly from the funds. However, to provide the much needed liquidity to investors, many closed-end funds get themselves listed on a stock exchange(s). Trading through a stock exchange enables investors to buy or sell units of a closed-end mutual fund from each other, through a stockbroker, in the same fashion as buying or selling shares of a company. The fund’s units may be traded at a discount or premium to NAV based on investors’ perceptions about the fund’s future performance and other market factors affecting the demand for or supply of the fund’s units. Note that the number of outstanding units of a closed-end fund does not vary on account of trading in the fund’s units at the stock exchange. On the other hand, funds often do offer” buy-back of fund shares/units”. Thus offering another avenue for liquidity to closed-end fund investors. In this case, the mutual fund actually reduces the number of units outstanding with investors.

LOAN AND NO LOAD FUNDS :Marketing of a new mutual fund scheme involves initial expenses. These expenses may be recovered from the investors in different ways at different times. Three usual ways in which a fund’s sales expenses may be recovered from the investors are:1. At the time of investor’s entry into the fund/scheme, by deducting a specific amount from his initial contribution, or2. By charging the fund/scheme with a fixed amount each year, during the stated number of years, or3. At the time of the investor’s exit from the fund/scheme, by deducting a specified amount from the redemption proceeds payable to the investor. These charges made by the fund managers to the investors to cover distribution/sales/marketing expenses are often called “loads”. The loan charges to the investor at the time of his entry into a scheme is called a “front-end or entry load”. This is the first case above. The load amount charged to the scheme over a period of time is called a “deferred load”. This is the second case above.The load that the investor pays at the time of his exit is called a “back-end or exit load”. This is the third case above. Some funds may also charge different amount of loads to the investors, depending upon how many years the investor has stayed with the fund; the longer the investor stays with the fund, less the amount of “exit load” he is charged. This is called “contingent deferred sales charge”.Note that the front-end load amount is deducted from the initial contribution/purchase amount paid by the incoming investor, thus reducing his initial investment amount. Similarly exit loads would reduce the redemption proceeds paid out to the outgoing investor. If the sales charge is made on a deferred basis directly to the scheme, the amount of the load may not be apparent to the investor, as the scheme’s NAV would reflect the net amount after the deferred load.Funds that charge front-end, back-end or deferred loads are called load funds. Funds that make no such charges or loads for sales expenses are called no-load funds.In India SEBI has defined a “load” as the onetime fee payable by the investor to allow the fund to meet initial issue expenses including brokers’/ agents’/distributors’ commissions, advertising and marketing expenses. SEBI definition of a load fund would include all funds that charge a front-end load, which is in line with the internationally used definition. However, SEBI would consider a fund to be” a no-

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load” fund, if an AMC absorbs these initial marketing expenses and does not charge the fund-a situation that is somewhat special to India and not widely prevalent elsewhere. Internationally, a fund, even when it does not make a front-end load, would still be considered a load fund, if it charges an exit load or a deferred sales load. The reason for this slightly different definition of a load by SEBI is to be found in the nature of its regulations. Front-end load, or load as defined by SEBI, is meant to cover the marketing expenses associate with the first issue of a scheme. Other expenses are defined as “recurring expenses”, rather than as “loads”. SEBI regulations allow AMCs to recover loads from the investors for the purpose of paying for the initial issue expenses, subject however to a limit on the maximum amount that can be charged by the AMC. This limit currently stands at 6%, meaning that initial issue expenses should not exceed 6% of the initial corpus mobilized during the initial offer period. Similarly SEBI has also imposed a limit on the maximum “recurring expenses” including investment management and advisory fees that can be charged to a scheme. The limits have been related to the level of the weekly net assets. Thus the AMC can charge a scheme 2.50% of the average net assets of the scheme as recurring expenses, if the net assets do not exceed Rs 100 cores, 2.25% on the next 300 cores, 2.0% on the next 300 cores and 1.75% over Rs 700 cores. In case the scheme intends to invest in bonds, the maximum percentage limits are less by 0.25%. Further, if the AMC had absorbed the initial issue expenses, it can charge an additional 1% of net assets as investment management fees.From the investors’ perspective, it is important to note that loads are not charged only by open-end funds; even a closed-end fund can charge load to cover the initial issue expenses. It is also important to note that there are other expenses such as the fund manager’s fees, which are charged to the investors on an on-going basis, thus reducing the net asset value of the fund. If the investor’s objective is to get the benefit of compounding his initial investment by reinvesting and holding his investment for a very long term, then, a no-front –load fund is preferable to a load fund; the initial amount of investment by the fund gets reduced by the entry load, thus depriving the investor of the benefit of compounding his returns on the amount invested to the extent of the load. Some fund charge only an entry load, and some only an exit load. Such funds may be thought of as partial load funds. Sometime back, a fund started a new scheme with deferred load over future years. Some funds in India waive the initial issue expenses that are borne by the Asset Management Company or the sponsors, so the entire amount paid in by the investor gets invested without entry load deduction. At the same time, some of these no-front-load funds may charge exit loads from time to time. In other words, from time to time, a no-load fund may become a load fund. Note that a no-load fund only means a fund that does not charge sales expenses. All funds still charge the schemes for management fees and other recurring expenses; it is only that an investor in a no-load fund enters or exits at the net NAV of the fund, calculated after accounting for these expenses, but without any further adjustment for sales expenses from the NAV.

1.2 Tax exempt Vs. Non Tax exempt Funds:Generally, when a fund invests in tax-exempt securities, it is called a tax exempt fund. In the USA for example, municipal bonds pay interest that is tax free, while interest on corporate and other bonds is taxable. In India, after the 1999 Union Government Budget, all of the dividend income receipt from any of the mutual funds is tax free in the hands of the investor. However, funds other than equity funds have to pay a distribution tax, before distributing income to investors. In other words, equity mutual fund schemes are tax-exempt investment avenues, while other funds are taxable for distributable income.

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While Indian mutual funds currently offer tax free income, any capital gains arising out of sale of fund units are taxable. All the tax considerations are important in the decision on where to invest as the tax-exemptions or concessions alter the returns obtained from these investments. Hence, classification of mutual funds from the taxability perspective has great significance for investors.

1.3 Mutual Fund Types.All mutual funds would be either closed-end or open-end, and either load or no-load. These classifications are general. For example all open-end funds operate the same way; or in case of a load fund deduction are made from investors’ subscription or redemption and only the net amount used to determine his number of shares purchased or sold.

A) Board Fund Types by Nature of Investments. Mutual funds may invest in equities, bonds or other fixed income securities, or short term money market securities. So we have Equity, bond and money market funds. All of them invest in financial assets. But there are funds that invest in physical assets. For example, we may have gold or other precious metal funds, or Real estate funds.

B) Board Fund Types by Investment objective. Investors and hence the mutual funds pursue different objectives while investing. Thus, Growth fund invests form medium to long term capital appreciation. Income funds invest to generate regular income, and les for capital appreciation. Value funds invest in equities that are considered undervalued today, those value will be unlocked in the future.

C) Board Fund Types by Risk Profile: The nature of a fund’s portfolio and its investment objective imply different levels of risk undertaken. Funds are therefore often grouped in order of risk. Thus Equity funds have a greater risk of capital loss than a Debt fund that seeks to protect the capital while looking for income. Money market funds are exposed to less risk than even the Bond funds, since they invest in short term fixed income securities, as compared to longer term portfolios of bond funds. Fund managers often try to alter the risk profile of funds by suitably changing the investment objective. For example, a fund house may structure an “Equity income fund” investing in shares that do not fluctuate much in value and offer steady dividends-say Power sector companies, or a Real estate income fund that invests only the in income producing assets. Balanced funds seek to produce a lower risk portfolio by mixing equity investments with debt investments. Investors and their advisors need to understand both the investment objective and risk level of the different types of funds.

1.4 Money Market Funds :Often considered to be at the lowest rung in the order of the risk level, money market funds invest in securities of a short term nature, which generally means securities of less than one year maturity. The typical, short term, interest bearing instruments these funds invest in include Treasury bills issued by govt. Certificate of deposit issued by banks and commercial paper issued by companies. In India Money Market Mutual Funds also invest in the interbank call money market. UTI variant in this category UTI Money Market Mutual Fund.The major strength of money market funds is the liquidity and safety of principal that the investors can normally expect form short term investors.

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1.5 Gilt Funds:Gilts are government securities with medium to long term maturities, typically of over one year (under one year instruments being money market securities). In India, we have now seen the emergence of Government Securities or Gilt Funds that invest in government paper called dated securities (unlike Treasury Bills that mature in less than one year). Since the issuer is the Government/s of India/States, these funds have little risk of default and hence offer better protection of principal. However, investors have to recognize the potential changes in values of debt securities held by the funds that are caused by changes in the market price of debt securities quoted on the stock exchanges ( just like the equities). Debt securities prices fall when interest rate level increase and vice versa.

1.6 Debt Funds or Income Funds:Next in order of the risk level we have the general category debt funds. Debt funds invest in debt instruments issued not only by governments but also by private companies, banks and financial institutions and other entities such as infrastructure companies/utilities. By investing in debt, this funds target low risk and stable income for the investor as their key objectives. However as compared to the money market funds, they do have a higher price fluctuation risk, since they invest in longer term securities. Similarly, as compared to gilt funds, general debt funds do have a higher risk of default by their borrowers. Debt funds are largely considered as income funds as they do not target capital appreciation, look for high current income, and therefore distribute a substantial part of their surplus to investors. Income funds that target returns substantially above market levels can face more risk. While we have an earlier described the equity income funds, the income funds fall largely in the category of debt funds as they invest primarily in fixed income generating debt instruments’. Again, different investment objectives set by the fund managers would result in different risk profiles.

A) DIVERSIFIED DEBT FUNDS:-

A debt fund that invests in all available types of debt securities issued by entities across all industries and sector is a properly diversified debt fund. While debt funds offer high income and less risk than equity funds, investors need to recognize that debt securities are subject to risk of default by the issuer on payment of interest or principals.A diversified debt fund has the benefit of risk reduction through diversification and sharing of any default-related losses by a large number of investors. Hence a diversified debt fund is less risky than a narrow focus fund that invests in debt securities of a particular sector or industry.

B) FOCUSED DEBT FUNDS:-

Some debt funds have a narrow focus, with less diversification in its investments. Examples includes sector, specialized and offshore debt funds. The debt funds have a substantial part of their portfolio invested in debt instruments and are therefore more income oriented and inherently less risky than equity funds. However the Indian financial markets have demonstrated that debt funds should not be automatically considered to be less risky than equity funds, as there have been relatively large defaults by issuer of debt and many funds have non-performing assets in their debt portfolios. It should also be recognized that the market values of debt securities will also fluctuate more as Indian debt markets witnessed more trading and interest rate volatility in the future. The central point to note is that all these narrow focused funds have greater risk than diversified debt funds. Other examples of focused funds include those that invest only in corporate debentures and bonds or only in tax free infrastructure or municipal bonds. While these funds are entirely conceivable now, they may take some time to appear as a real choice for the Indian investor. One category of

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specialized funds that invests in the housing sector, but offers greater security and safety that other debt instruments, is the mortgage backed bond funds that invest in special securities created after securitization of (and thus secured by) loan receivable of housing finance companies. As the Indian finance markets witnessed the growth of securitization, such funds may appear on the mutual fund scene sooner rather than later.

C) HIGH YIELD DEBT FUNDS:-

Usually, debt funds control the borrower default risk by investing in securities issued by borrowers who are rated by credit rating agencies ad are considered to be of “investment grade”. There are, whoever, high yield debt funds that seek to obtain higher interest returns by investing in debt instruments that are considered “below investment grade”. Clearly these funds are exposed to higher risk, funds that invest in debt instruments that are too backed by tangible assets and rated below investment grade (popularly known as junk bonds) are called junk bond funds. These funds tend to be more volatile than other debt funds, although they may earn higher returns as a result of the higher risk taken.

D) ASSURED RETURN FUNDS-A INDIAN VARIANT:-

Fundamentally, mutual funds hold assets in trust for investors. All return is for account of the investor. The roll of the fund manager is to provide the professional management service and to ensure the highest possible return consistent with the investment objective of the fund. The fund manager or the trustees or the sponsors do not give any guarantee on the minimum return to the investors. Returns re indicated in advance for all of the future years of these closed-end schemes. If there is a short fall, it is born by the sponsors. Assured return or guaranteed monthly income plans are essentially Debt/Income funds. Assured return debt funds certainly reduced the risk level considerably, as compared to all other debt or equity funds, but only to the extent that the guarantor has the required financial strength. Hence, the market regulator of SEBI permits only hose funds whose sponsors have adequate net worth to offer assurance of returns, if occurred explicit guarantee is required from a guarantor whose name has to be specified in advance in the offer document in the scheme.While assured return funds may certainly considered being the lowest risk type within the debt funds category, they are still not entirely risk free, as investors have to normally lock I their funds for the term of the scheme or at least a specified period such as 3 years. During this period, changes in the financial markets may result in the investor losing the opportunity to obtain higher returns later in other debt or equity fund. Besides, the investor does carry some credit a risk on the guarantor who must remain solvent enough to honour its guarantee during the lock in period.

E) FIXED TERM PLAN-AN INDIAN VARIANT:-

A mutual fund scheme would normally be either open-end or closed-end. However, in India mutual funds have involved on innovative middle option between the two, in response to the investor needs. If a scheme is open-end, the fund issues new units and redeems them at any time. The fund does not have a steed maturity or fixed term of investment as such. Fixed term plan series offers a combination of both these features to investors, as a series of plans are offered and units are issued at a frequent inverted for short plan duration. Fixed term plans are essentially closed-end in nature in that the mutual fund AMC issues a fixed number of units for each series only once ad close the issue after an initial offering period, like a closed end scheme offering. However, a closed-end scheme would normally make a onetime initial

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offering of units for a fixed duration generally exceeding one year. Investors have to hold the units until the end of the stated duration, or sell them on stock exchange if listed. Fixed term plans are closed-end, but usually for shorter term-less than a year. Being of a short direction they are not listed on a stock exchange. Of course, like any closed-end fund, is plan series can be wound up earlier, under certain regulatory conditions.It is also important to bear in mind that the actual structure of the umbrella scheme under which a fixed term plan series is offered can be either closed-end or open-end., some funds in India use a closed-end structure, while others the open end structure, to offer term plans.In any case, you can think of fixed term plans as a series of closed end plans within a scheme. Like the closed-end funds, fixed term plans also make only a one time offering of units, but such offering are made in a series of plans under one scheme prospectus or offered documents. No separate offer document is issued each time a new series is launched.The scheme under which such fixed term plans are offered is likely to be an income scheme, since the objective is clearly of the AMC to attempt to reward investors with an expected return within a short period. Mutual fund AMCs in India usually offering such plans do not guarantee any returns, but the product has clearly been designed to attract the short term investor who would otherwise place the money as fixed term bank deposits or inter corporate deposit.

1.7Equity Funds:-As investors move from debt fund category to equity funds, they face increased risk levels. However, there is a large variety of equity funds and all of them are not equally risk prone. Inventors and their advisor need to short out and select the right equity fund that suits their risk appetite. In the following section, we have presented the equity fund types, going from the highest risk level to the lowest level within this category.Before we look at the equity fund type in terms of the risk level, we must understand where the risks of equity funds came from and how they are different from debt funds. Equity fund invest a major portion of their corpus in equity shares issued by companies, accrued directly in initial public offering or through the secondary market. Equity funds would be exposed to the equity price fluctuation risk at the market level, at the industry or sector level and at the company specific level. Equity funds net asset values fluctuate with all these price movements. These price movements are caused by all kinds of external factors, political and social as well as economic. The issues of equity shares offer no guaranteed repayment as in case of debt instruments. Hence, equity funds are generally considered at the higher end of the risk spectrum among all funds available in the market. On the other hand, on like debt instruments are that offer fixed amounts of repayments equity can appreciate in value in line with the issuer’s earnings potential, and so offer the greatest potential for growth in capital.Equity funds adopt different investment strategies resulting in different levels of risk. Hence, they are generally separated in to different types in terms of their investment style. A) AGGRESSIVE GROWTH FUNDS:- There are many types of stocks/shares available in the market; blue chips that are recognized market leaders, less researched stocks that are considered to have future growth potential, and even some speculative stocks that are considered to have future growth potential, and even some speculative stocks of somewhat unknown or unproven issuers. Fund managers seek out and investment in different types of stocks in line with their own perception of potential returns and appetite for risk. As the name suggests, aggressive growth funds target maximum capital appreciation, invest in less researched or speculative shares and may adopt speculative investment strategies to attain their

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objective of high returns for the investor. Consequently, they tend to be more volatile and riskier than other funds.

B) GROWTH FUNDS: Growth funds invest in companies whose earnings are expected to rise at an above average rate. These companies may be operating in sectors like technology considered having a growth potential, but not entirely unproven and speculative. The primary objective of growth funds is capital appreciation over a three to five year span. Growth funds are therefore less volatile than funds that target aggressive growth. UTI Master Share 86, UTI Equity Fund, UTI Index Select Fund and UTI Master plus are few funds under UTI basket fall under this category. C) SPECIALITY FUNDS: These funds have a narrow portfolio orientation and invest in only companies that meet pre-defined criteria. For example, some funds may build portfolios that will exclude Tobacco companies. Funds that invest in particular regions such as the Middle East or the ASEAN countries are also an example of specialty funds. Within the specialty fund category, some funds may be broad based in terms of the types of investments in the portfolio. However, most specialty funds tend to be concentrated funds, since diversification is limited of one type of investment. Clearly concentrate specialty funds tend to be more volatile than diversified funds. UTI leadership Equity Fund as an example having invested 65% in leaders of a sector. C. i. Sector Funds: Sector funds’ portfolios consist of investment I only one industry or sector of the market such as information technology, pharmaceuticals or fast moving consumer goods that have recently been launched I India. Since sector funds do not diversified into multiple sectors, they carry a higher level of sector and company specific risk than diversified equity funds, UTI Pharms & Healthcare fund, UTI Banking sector fund are few examples of the sector fund.

C. ii. Thematic Funds: These fund’s asset-allocati9n and investment-universe are structured on a “theme”. Not as restrictive as sector funds, the theme could run well across sectors, such UTI infrastructure Fund and UTI Services Fund.

C. iii. Offshore funds: These funds, invest in equity in one or foreign countries there by achieving diversification across the country’s borders. However they also have additional risks-such as foreign exchange, rate risk-and their performance depends on the economic conditions of the countries they invest in offshore equity funds may invest in a single country ( hence riskier) or many countries ( hence more diversified). India Fund, India Growth Fund, Columbus India Fund are varieties of Offshore Funds UTI MF launched in different times.

C. iv. Small –Cap equity Funds: These funds invest in shares of companies with relatively lower market capitalization than that of big, blue chip companies. They may thus be more volatile than other funds, as smaller companies shares are not very liquid in the markets. We can think of these funds as a segment of specialty funds.

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In terms of risk characteristics, small company funds may be aggressive growth or just growth type. In terms of investment style, some of these funds may also be “value investors”.

C. v. Option Income-Funds : These funds do not yet exit in India, but option income funds write options on a significant part of their portfolio. While options are viewed as risky instruments, they may actually help to control volatility. If properly used. Conservative option funds invest in age, dividend paying companies. And then sell options against their stock positions. This ensures a stable income stream in the form of premium income through selling options and dividend. Now that options on individual shares have become available in India, such funds may be introduced.

D) DIVERSIFIED EQUITY FUNDS: A fund that seeks to invest only on equities, except for a very small portion in liquid money market securities, but is not focused on any one or few sectors or shares, may be termed a diversified equity fund. While exposed to all equity price risk diversified equity fund seek to reduce the sector or stock specific risk through diversification. They have mainly market risk expose. Such general proposal proposes but diversified funds are clearly at the lower risk level than the growth funds .

D. i. Equity Linked Saving Schemes: an Indian variant In India, the investors have been given tax concessions to encourage them to invest in equity markets through these special schemes. Investment in these shames entitles the investor to claim an income tax rebate, but usually has a lock-in period before the end of which funds cannot be withdrawn. These funds are subject to the general SEBI investment guidelines for any ‘equity’ funds, and would be in the diversified equity fund category. However, as there are no specific restrictions on which sectors these funds ought to invest in, investors should clearly look for where the fund management company proposes to invest and accordingly judge the level of risk involved. UTI is having UTI Equity Tax Savings Plan in this category. This scheme provides tax benefit under sec 80© of Income Tax Act 1961. The investments are locked for three years. Generally these schemes are highly diversified equity funds invested across the sectors of the economy.

E. EQUITY INDEXES FUND:- An index fund tracks the performance of a specific stock market index. The objective is to match the performance of the stock market by tracking and index that represents the overall market. The fund invests in shares that constitute the index and in the same proportion as the index. Since they generally invest in a diversified market index portfolio, these funds stake only the overall market risk, while reducing the sector and stock specific risks through diversification. In India the index funds generally track NIFTY ad BSE Sensex. UTI Master Index Fund is a variety of equity Index Fund which tracks BSE Sensex. UTI Nifty Index fund is a variant of such fund tracks NIFTY. These two funds are best of the Index funds in the Indian Mutual Industry.

F. VALUE FUNDS: The growth funds too reviewed above hold shares of companies with good or improving profit prospects, and aim primarily at capital appreciation. They concentrate on the future growth prospects, may be willing to pay high price/earnings multiples for companies considered to have good potential. In contrast to the growth investing, other fund follow value investing approach. Value funds try to

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seek out fundamentally sound companies whose shares are currently under priced in the market. Value funds will add only those shares to their portfolios that are soloing at low price earnings ratios, low market to book value ratios are undervalued by other yardsticks. Value funds have the equity market price fluctuation risk, but stand often at a lower end of the risk spectrum in comparison with the growth funds. Value stocks may be form a large number of sectors and therefore diversified. However, value stocks often come from cyclical industries. Price of such shares may fluctuate more than the overall market in both bull and bear markets, making such value funds more risky than diversified funds in the short term. However, proponents of value investing recommend it as a long term approach. In the long term, value funds ought to be less risky than growth funds or even equity diversified funds.It picks up the stock considering its future potentials but undervalued today to their intrinsic value and which will create wealth for the various stake holders in the medium to long term, Investment tools like low P/E, Low P/Book, value and positive EVA (Economic Value Added) will be used to identify these types of stocks. G) EQUITY INCOME FUNDS: Usually income funds are in the debt funds category as they target fixed income investment. However, there are equity funds that can be designed to give the investor a high level of current income along with some steady capital appreciation, investing mainly in shares of companies with high dividend yields.As an example an equity income fund would invest largely in power/utility companies shares of established companies that pay higher dividends and whose prices do not fluctuate as much as other shares. These equity funds should therefore be less volatile and less risky than nearly all other equity funds.

1.8 Hybrid Fund-Quasi Equity/ Quasi Debt:- We have seen that in terms of the nature of financial securities held, there are 3 major mutual fund types: money market, debt and equity. Many mutual funds mix these different types of securities in their portfolios. Thus, most funds, equity and debt, always have some money market securities in their portfolios as these securities offer the much needed liquidity. However, money market holdings with constitute a lower proportion in the overall portfolios of debt or equity funds. There are funds that, however, seek to hold a relatively balanced a holding of debt and equity securities in their portfolios. Such funds are timed “hybrid funds” as they have dual equity/ bond focus. Some of the funds in this category are described below.

a) Balanced Funds: A balanced fund is one that has portfolio comprising debt instruments, convertible securities, and preference and equity shares. Their assets are generally held in more or less equal proportion between debt/money market securities and equities. By investing in mix of this nature, balanced funds seek to attain the objectives of income moderate capital appreciation on preservation of capital, and are ideal for investors with a conservative and long term orientation.

b) Growth –and-income Funds: Unlike income focused or growth focused funds, these funds seek to strike a balance between capital appreciation and income for the investors. Their portfolios are a mix between companies with good dividend paying record as and those with potential for capital appreciation. These funds would be less risky than pure growth funds, though more risky than income funds.

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c) Asset allocation Funds: Normally, an equity fund would have its primary portfolio in equities most of the time. Similarly, a debt fund would not have measure equity holdings/ In other words their “asset allocation” is predetermined within certain parameter. However, there do exist funds that follow variable asset allocation policies and move in and out of an asset class (equity, debt, money market, or even non-financial asset) depending upon their outlook for specific markets. In many ways these funds have objective similar to balanced funds and may seek to diversify into foreign equities, gold and real estate backed securities in addition to debt instruments, convertible securities, and preference and equity shares. Asset allocation funds that follow more stale allocation policies (which hold relatively fixed proportion of specific categories) are more like balanced funds. On the other hand, funds that follow more flexible allocation policies (which vary their waiting depending upon the fund manager’s outlook) are more akin to aggressive growth or speculative funds. The former are for investors who prefer low risk and stable return. The later carry higher risk and potential for higher return because of the flexibility enjoyed by the fund managers.

1.9 Commodity Fund:While all of the debt /equity/ money market funds invest in financial assets, the mutual fund vehicle in suited for investment in any other for example-physical asset. Commodity funds specialize in investing in different commodities directly or through share or commodity companies or through commodity future contracts. Specialized funds may invest in a single commodity or a commodity group such as edible oils or grains, while diversified commodities funds will spread their assets over many commodities.A most common example of commodity funds is the so-called precious metal funds. Gold funds invest in gold, gold futures or shares of gold mines. Other precious metals funds such as platinum or silver are also available in other countries. They may take expose to more than one metal to get some benefit of diversification. In India a gold fund may hold potential, given a large public holdings and interest in gold. However, commodity funds have not yet developed.

1.10 Beat Estate Funds:-Specialized real estate funds would invest in real estate directly, or may fund real estate developers, or lend to them or buy shares of housing finance companies or may even buy their securities assets. The funds may have a growth orientation or seek to give investors regular income. There has recently been an initiative to offer such an income fund by the HDFC.

The most important question that arises in the time of investment is that where to invest, or which kind of asset to invest in, here arises the needs of allocation of investment approach suggested by Boggle Bogie starts with the fundamental asset allocation advice given by one of the stalwarts of investment planning, Benjamin Graham, who advocate 50/50 split between equities and bond, the common sense approach to start.With when value of equities goes up, balance can be restored by liquidating past of equity portfolio, and vice versa. This is the basic defensive or conservative approach. Benefits include not being drawn

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into investing more and more into equities in raising market. Bothy the gains and losses will be limited. But it got to get about half of the returns of a rising market and to avoid the full losses of a falling market.

Graham’s approach can be translated into reality by holding different kinds of portfolios of funds. Boggle suggests the following combination;

1 A basic managed portfolio 50% in diversified equity ‘value’ funds2 A basic indexed portfolio funds 25% in a government security funds

50% in total stock market /index50% in total bond market portfolio

3 A simple managed portfolio 85% in a balanced 60/40 fund15% in medium term bond fund

4 A complex managed portfolio 20% in diversified equity funds20% in aggressive growth funds10% in specialty funds30% in long-term bond funds20% in short –term bond funds

5 A readymade portfolio Single index fund with 60/40 equity/bond holding.

AWARENESS OF RISKS IN MUTUAL FUND INVESTING The right level of risk tolerance of any investor depends upon his age, the amount of investible funds available, and his financial circumstances including income level, job securities, family size etc.

EVALUTATING THE RISK OF A MUTUAL FUND:-

In generic sense, risk means the possibility of financial loss, in the investment world, the possibility of loss is considered to arise from the variability of earning from time to time, in mutual fund case it refers to the return of a fund. A fund with stable and positive earnings is less risky than a fund with fluctuating total return. “Risk” is thus with volatility of earning, a statistical measurable concept.Measurement of a specific fund’s risk is by now a highly evolved though somewhat Technical and quantitative exercise. It is neither possible nor necessary for a fund distributor to learn or get involved with sophisticated statistical techniques used to measure fund risks.

EQUITY FUNDSVolatility of an equity mutual fund portfolio comes from:a) The kind of stocks in the portfolio (growth or value, sell or big)b) The number of stocks in, or degree of diversification of, the portfolio (smaller portfolio may be more volatile than large, diversified ones)c) Fund manager’s success t market timing (adjusting the asset allocation in response to asset class price movement)

A. Equity Price risks

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1. Company specific2. Sector specific3. Market level.Company specific risks have to researched and assessed by the fund’s analyst and portfolio managers, holding a large, say 15/20 –share portfolio, generally balanced out and diversified the company risks. Sectors or industries have risk too. Funds research and track the sector with good potential, again, the more the number of sectors is a portfolio sector risk. Specific sector funds clearly have more risk. Then comes the market risk which is not diversifiable, as it arises from broad economic other factor. Managers try to anticipate bear or bull phases and try to adjust their portfolio asset allocation. If equity index futures and options are available, managers try to ‘hedge’ their portfolio with these instruments.

B. MARKET CYCLE:Market cycle are extensively researched and analysed in the U.S by agencies. Such as Lipper. In India independent agencies, broker and newspapers are doing some of this analysis. It is important to see how a portfolio or a share performs over a well-defined cycle than over some arbitrary, calendar period. It is also important to understand that equity investment is basically more rewarding in the long-term. Any equity fund can be more risky as a short-term investment, sticking to a good fund helps.

C. RISK MEASURES:Risk, define as volatility, is measured by the statistical concept of standard deviation. SD measures the fluctuation of a fund’s returns around mean level. Use monthly results of an equity fund. Tabulate returns, calculate mean returns. Calculate variances of each month’s returns from the mean. Square this number. Sum up. Divide by the number of period of observation. Compute the overall variances or the standard deviation. Another measure of fund’s risk is BETA COFFICIENT. Beta relates a fund’s returns with a market

index and measure the sensitivity of the fund’s returns to change in the market index. A beta of 1 means the fund move with the market, typically in case of conservative portfolio. Higher beta portfolio gives greater returns in rising market and is riskier in falling market. A good measure of fund risk level. But, remember beta is based on past performance.Boggle’s EXMARK or a number known as “R-SQUARED” is used to help spot questionable betas. R-Squared measures how much of a fund’s fluctuations is attributes to movement in the overall market, from 0 to 100 percent. Overall, standard deviation is the best of risk, even though it is also based on past returns. It is the broader concept than beta that measures the total risk, not just market risk. It is an independent number. Risk of both specialized and diversified funds, and both equity and debt fund are measurable with standard deviation.One can see that risk and return are inextricably related. So it make sense to measure what is called RISK ADJUTMENT PERFORMANCE, SARPE AND TREYNOR ratio do that, both of which compute the ‘risk premium’ o a funds difference between the funds average and the return of a risk Government security or treasure bill over a given period. A simple way of getting a fund’s risk level is to see tis PRICE/EARNING MULTIPULE. This is simply the weighted average of the price /earnings ratio of all the stocks held in its portfolio. Higher the fund P/E as compared to the market or other funds, the higher the probability of its fall in future.

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Increasingly one can see these numbers being presented in the published analysis of fund performance and their risk level. In India, three sources of such information are the fund tracking agencies, research report from broker another, and funds’ own report.

DEBT FUNDS:-Debt fund are expressed to credit risk. Risk of loss through borrower defaults, and interest rate risk that comes from the average maturity of the fund’s portfolio. Look at two simple measures of risk. First, what has been the default experience of the in the pat and it’s non-performing –asset at present? Second, look t the average maturity or duration of a portfolio. To ensure that it matched with the risk appetite of an investor. The longer the maturity of a portfolio, the greater the risk it has from interest rate fluctuation. Once one has broadly understood the investor’s risk appetite, arrived at an asset allocation plan for him, and devised a mutual fund action plan by choosing the funds with the risk level that suit the investor.

RECOMMENDING MODEL PORTFOLIO AND SELECTING THE RIGHT FUNDS

A. DEVELOPING A MODEL PORTFOLIO

I. Avoid Ad-hoc investment advice or decision:There was a time when Indian investor did not have many investment schemes.To choose from, it was then for the agent to simply point out the benefits of any currently available scheme to a prospective investor. The investor then decides whether the scheme was suited to his needs or not. Now the Indian mutual fund industry a wide choice if investment scheme, unlike ever before.Different schemes suited to different investor needs. In this scenario, an investor not only needs advice on how to choose from this variety of investment options available, but also a proper investment strategy that is suitable to his situation and needs. The role of the gent in this scenario is to help investor develop the approach to investing, not just offer ad-hoc advice or simply point out the features and benefits of different options. Recommending.A suitable investment to an investor can mean loss of customers for the agent.

II. Jacob’s four step program: developing a model portfolio: Work with investor to develop long-term goals:As Jacobs puts it, mutual fund inviting is a “get-rich –quick scheme”. Investors must have an investment programme and ought to set their own sight on long-term objective. In other words, investment decisions ought to be taken in terms of clear, long-term goals, not on an ado basis.Each investor should be advised expect only realistic wealth accumulation goals, no dramatic result overnight. For example, in the current Indian market conditions, investors can expect 18-20% plus long term result in equity investment, 10-12% returns in debt investment and 7-8% in money market. Investment. “This expectation can change over time. Specific investment of funds can give greater return, but higher returns will be in most cases achieved by investors or their fund mangers’ takings greater risks.

Determine the asset allocation of the investment portfolio:

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So how can decide what level of risk to assume? One practical answer to that question is risk depend upon the nature of investment: equity debt or money market securities and the proportion if these three types of securities in any portfolio. This is called asset allocation.Each investor ought to be advised to allocate his total investment fund three classes in proportion that suit is personal and financial conditions. There is no such thing as an ideal asset allocation valid for all investor. That is why, the mutual fund agent need to act as investment advisor and:

• Must first get know their investors, They ought to understand each investor’s availability of fund, the size of his portfolio, beside his personal situation as expressed by the size of his family, his own age, the nature of his work, etc.

• Only after understanding the investor’s need, go on to recommend an asset allocation plan that would be appropriate to his need.

III. Determination the sector distribution:Once the liquidity, income and growth asset distribution is determined, the Advisor can determine how much allocation to make sector of the mutual fund, liquidity needs are generally satisfied with Money Mutual funds. Income needs are to be satisfied with debt funds or Equity income funds and growth asset can be built up with equity funds, either conservative or aggressive growth.

IV. Select specific fund manager’s ad schemes This step is required to translate the amounts to be invested in each mutual fund sector into actual decision on which scheme on which fund manager to select for investments, as the investor would have a choice of many debt funds or money market mutual funds or even balanced fund.

MODEL PORTFOLIOSIn preparing an investment program, the investor or the advisor would have to deal with investors at different stage of their life cycle and therefore with different needs. Each type of investor may be advised to have some typically suitable model portfolio, Jacobs gives four different portfolios, summarized below.

A good exercise will have be to find out the Indian mutual fund equivalent recommendations for Indian investors, using the above guide below is one set of recommendation on the suggested asset allocation and model portfolio for investors categorized by wealth cycle stages, and using types of mutual funds available in India.

TYPES OF INVESTORS AND RECOMMENDED INVESTMENT STRATEGIES

1. INVESTOR IN THE ACCUMULATION PHASE:During this phase, clients are looking to build wealth because their financial goals are quite some time away ad investment can be made for the long-term. For such client, the following asset allocation may be appropriate.

ASSET ALLOCATIONDiversified equity, sector and balance fund 60% to 80%Income and gilt fund 15% to 30%Liquid funds and bank deposits 5%

2. INVESTORS IN THE TRANSITION PHASE:

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During this phase, one or more of the client’s goals are approaching and clearly in sight. If a salaried executive is planning to retire at 60 years of age, he should start preparing about 3 years in advance by gradually transitioning from growth to income generating investment. Likewise, a couple in their mid-40s who have children approaching the age of higher education marriage, should gradually start converting some of their equity investment into income and cash fund to prepare for these financial commitment.

3. INVESTOR IN DISTRIBUTION OR REPAPING PHASE:This is the chasing out stage. For example if the client has retired, investment need to generate income for a comfortable post-retirement life. Hence the financial planner has to ensure there is enough investment in fixed income fund to support the client. If the post-tax return expected are 8% per annum, then the client need to set aside about 150 times their monthly requirement in income fund, and opt for a dividend plan or systematic withdrawal plan. Some investment should certainly be left in growth asset like equities, because only this can provide a hedge against inflation. This is because while expenses will

ASSET ALLOCATIONDIVERSIFIED EQUITY ANDBALANCED FUNDS

35% TO 30%

INCOME FUNDS 65% TO 80%CASH FUNDS 5%

Rise over the year, the inflow from fixed income investment may not, all other thing being constant, a typical asset allocation for client in the requirement stage could be: If the cash inflow from income fund is not sufficient to meet the monthly requirement, a retired couple can adopt a couple of strategies. • Sell some of their fixed and hard asset, this will release fresh cash flow into system which can help

fund the gap, and • Make small monthly withdrawal from the principle of both their equity and fixed income

investment to bridge the gap. There is no rule that client should not gradually draw down on principle, as long as they don’t outlive all their source of money.

In the case of a client who want to buy a home or fund a children’s education, the financial planner can advise the client to liquidate a combination of equity and income investment to come up with what’s required.

4. INVESTOR IN INTER-GENERATION TRANSFER PHASE :Younger client up to their early 50’s would depend on life insurance policies to take care of the next

generation in event of death, for older investors, who want to transfer their wealth, the recommended investment strategy will depend upon the beneficiaries : Children: if the children are grown up, then leaving behind a balanced combination of growth

and income funds may be appropriate for them. Grandchildren: If the grandchildren are young, then the growth fund may be best, as this group

has a log of time available for the investment to grow in value. Charitable causes: Typically income funds are bet to support such endeavors, as they have the

capacity to provide current income.

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5. INVESTOR IN THE SUDDEN WEALTH STAGE:The financial planner should advice client who acquire sudden wealth.

To take into account the effect of taxes, because this onetime windfall may be greatly reduced after taxes have taken bite.

To keep the money in safe, liquid investment while they take their time on deciding what to do with the money. This advice is very useful because client tend to spend the money immediately, or just give it away recklessly in the first flush of getting a big amount. By giving them time, client will act more rationally and hey can then be advised to make the appropriate investment at a later stage.

6. FINANCIAL PLANNING FOR AFFLUENT INVESTOR: Wealth creating individuals : For such investors, a 70% to 80% allocation to diversified equity and sector funds would provide

the kind of aggressive plan that they may be looking for. It should be kept in mind that wealthy investor have a higher risk bearing capacity as even the incurrence of losses may not seriously impair their lifestyle or ability to fund their normal routine expense.

Wealth preserving individuals : For such investor, a conservative portfolio with a 70% to 80% exposure to income, gilt and liquid

fund would be appropriate, with the remaining in low-risk diversified equity or balanced funds. The financial planner should recommend a low-risk investment strategy for such client, because these investors have enough already, do not need to bear any risk, and are likely to go through unnecessary trauma if their investment decline in value.

FINANCIAL PLANNINGEach one of us needs “finance” at various stages of line, and to ensure that one should have the money available at the right time, when needed. Usually, personal financial needs are of two types- protection and investment. An earning member providing for his family to have continued income after his death is an example of a protection need. Providing for the marriage expenses of a daughter is an example of an investment need. “Financial planning is an exercise aimed at identifying all the financial needs of an individual, translating the need into monetarily measurable the future, and goals at different times in planning the financial investments that will allow the individual to provide for and satisfy his future financial needs and achieve his life’s goals”. The objective of financial planning is to ensure that the right amount of money is available in the right hands at the right point in the future to achieve an individual’s financial goals.

BENEFITS OF FINANCIAL PLANNING:It may be necessary for a person to save for money years to create adequate income in the retirement phase. Certain financial product and technique can help to reduce the amount of tax one has to pay. It is important that financial plans are tax sufficient. The simplest financial plans will involve detail knowledge of law, taxation and investment principles. Amidst this complex environment for an investor, financial planning provides direction and meaning to financial decisions. It allows one to understand how each financial decisions one makes affect other areas of one’s finances. For example, buying a particular investment product might help one save adequately to finance his/her children’s higher education or it may provide enough for a comfortable retirement. By viewing each financial

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decision as part of a whole, one can consider its short and long term effects on one’s life goals. One can also adapt more easily to changes in life and feel more secure that one’s goals are on track.

Mutual fund distributors, who become a well-trained financial planner, also have many benefits:A. Ability to establish long term relationship : A financial planner is not just selling products, but is instead taking responsibility for the financial

wellbeing of his client. With such an approach, it is easy to build lasting relationship, unlike a transaction oriented, where customer has to be found a new for every new investment. Also the financial planner ideally links his reward and fees to the client financial success and the achievement of their financial goals. On the other hand, a seller of a product makes the commission regardless of how well or not the client fares, so the client may find it difficult to consider such a product sales person as his guide.

B. Ability to build a profitable business : By offering a value added services, the financial planner takes the emphasis away from the price

and is able to retain enough to build a profitable business. Clearly clients are less likely to ask for a rebate if they perceive good advice and value being offered to them. If one does not offer such advice, then it is merely a commodity service where there is intense competition, difficulty in retention and narrow margins.

Overall the financial planner can be satisfying in many ways. By helping clients lead more rewarding and happier lives and by pointing the right direction from them, one not only earns their trust and friendship, but also a sense of fulfillment of having made a positive impact on their lives. After all, financial health is linked to and is the foundation for emotional, physical and spiritual health and gives a sense of security and accomplishment to the client. If they are to fulfill their goals, they are likely to share their success with their advisors who have helped them to achieve this financial well-being.

WHAT MAKES A GOOD FINANCIAL PLANNER

Some fundamental traits of a successful financial planner are: Building trust the client by empathizing with them and understanding their aspirations, concerns

and needs, good listing skills and the ability to ask the right question. Good knowledge of financial products and options, their risk-return profile, and a strong

understanding of their behavior and track records of various investment and asset classes. Familiarity with the taxation and estate planning issues. An understanding of various stages in the client’s life and wealth cycle and the asset allocation that

makes sense for each of these stages. Independent judgment and balanced linking which is a key value that must be shared with clients

when they overreact and get overly elated or dejected based on market sentiment. An organized way of working, with one of the critical elements being a written financial plan

which document clients’ needs and resources, a specific investment strategy and the progress made towards achieving the objectives.

Regular contact with the clients, especially during times when the client’s portfolio has declined in value and they are felling disillusioned. This is the time to remind clients that the only measure of successful investment is how well it helps in achieving the client’s goals.

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Finally, a clear focus on the overall financial wellbeing of the client’s portfolio, rather than on individual transaction. In an ideal sense, the financial planner should link his remuneration to the overall achievement of client’s goals, rather than relying on a fee from the client for each transaction.

THE PLACE OF MUTUAL FUNDS IN FINANCIAL PLANNING

Of all the investment options available, a mutual fund is the single most important tool in the financial planner’s armory. Mutual funds can form the core foundation and building block for any type of clients-retail, affluent or institutional.There is a great variety in mutual fund offering including diversified equity fund, sector funds, income funds, gilt funds, money market funds; and these individually or in combination can tailor for every investor the exact mix of return potential, risk diversification, liquidity and tax efficiency that they need. Financial planner and their clients therefore need look no further than mutual funds for complete set of investment needs. Barring life and individual property insurance, which provide protection against unexpected and unforeseeable events, mutual funds provide easy access to each financial asset classes, and are suitable for all type of investors.By using mutual fund as their core financial planning strategy, financial planners are able to take on professional fund managers as allies, instead of taking on the entire burden of tracking financial markets themselves. In essence, financial planners and their clients should be concentrating on the strategic or asset allocation decision within that asset classes i.e. focusing on client’s needs and deciding on how much to allocate in various asset classes. After this, they should allow professional fund manager to take the tactical or security decision within that asset class. These divisions of responsibility work very well because financial planner can concentrate on their client and can work best for them. While fund manager focus on choosing the best securities in that asset class and in following the mandate of the offer document. Financial planner and client taking individual security decision in inefficient because they are duplicating the work of experienced and qualified fund managers. Instead they can use this time more effectively for a deeper discussion of a client’s goal, tax situation or appropriate asset allocation strategy.

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Meaning Of Research: Research is a matter of gathering information from varying sources usually in relation to a specific topic and for a specific purpose. The definition of research includes any gathering of data, information and facts for the advancement of knowledge.

Objective of the Research:

To study about the Life Insurance. To study customers perception towards Life Insurance. To calculate the investors awareness towards life insurance. To study the company profile and snap shots of the Bajaj Capital Company. To find out the services provided by financial market. To study the stapes taken for improving investors awareness.

Scope of the Research :

The study is very good yardstick for the measurement of investors awareness in Life Insurance. The study is relevant to student as they gain knowledge regarding Life Insurance and different

type of investors awareness towards Life Insurance. People of age between 25 to 65.

Area limited only Bhubaneswar.

Limitation Of the Research:

Studying about the investors awareness in Life Insurance is a difficult job which requires through and in depth research. The limitations are:

The time period available for the study was too less to work on a project like this. Scope of the research is quite vast. There are most of the people are more aggressive who are not willing to listen anything and behaving

badly at the time of survey. Lack of published material on several important issue which has restricted the study from being

exhaustive.

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Lack of co-operations from public to answer the questions regarding Life insurance. Most people don’t had time to listen about the Life Insurance schemes.

Sampling Plan:

NUMBER OF SAMPLES: 50

SAMPLING TECHNIQUES: Random

SAMPLE DESCRIPTION: I interacted with the working men & women.

Data Collection : Data has been collected both from primary as well as secondary sources as described below:Primary sources : Primary data was obtained through questionnaires filled by people and through direct communication with respondents in the form of Interview.Secondary sources : The secondary sources of data were taken from the various websites, books, journals reports, articles etc. This mainly provided information about the Life Insurance.

SOURCES OF DATA: Questionnaires.

AREA COVERED: Only Bhubaneswar.

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Data Analysis and Interpretation.

Q1. What kind of investment you prefer most?Saving Account 42%Fixed Deposits 10%

Insurance 17%Mutual Fund 8%

Post Office – NSC, etc 2%Shares and Debentures 4%

Gold/Silver 8%Real Estate 4%

PPF 3%PF 2%

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Q2. While investing your money which factor you prefer most?Liquidity 11%Low risk 35%High Return 41%Company reputation 13%

Q3. Have you ever invested your money in mutual Fund?

Yes 27%

No 73%

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Q4. Where do you find yourself a mutual fund investor?

Totally ignorant 38%Partial knowledge of mutual fund 20%Aware only of any specific scheme in which you invested.

15%

Fully Aware 27%

Q5. How do you come to know about mutual fund ?

Advertisement 40%Peer group 30%

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Banks 20%Financial Advisors 10%

Q6. If not invested in mutual fund then why?

Not aware of MF 40%Higher Risk 38%Not any specific reason 22%

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Q7. Which feature of the mutual funds allure you most ?

Diversification 19%

Better return and safety 33%

Reduction in risk and transaction cost

15%

Regular income 22%

Tax benefit 11%

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Q8. In which mutual fund you have invested?

SBIMF 27%

UTI 24%

HDFC 14%

Reliance 23%

ICICI Prudential funds 7%

JM mutual fund 5%

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Q9. When you invest in mutual funds which mode of investment will you prefer?

One time investment 32%

Systematic investment plan(SIP)

68%

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Q10. Where from you invest mutual funds?

Directly from the AMCs 29%

Brokers only 31%

Brokers/Sub-brokers 25%

Other sources 15%

Q11. How would you like to receive the returns every year?

Dividend payout 32%

Dividend re-investment 25%

Growth in NAV 43%

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FINDINGS AND RECOMMENDATIONS

From the above analysis, I found that even though certainly not the best or deepest of markets in the world, it has ignited the growth rate in mutual fund industry to provide reasonable options for an ordinary man to invest his savings.

FINDINGS

1. A mutual fund brings together a group of people and investment their money in stock, bond and

other securities.

2. The advantages of mutual ‘funds are professional management, diversification economy of

scale, simplicity and liquidity’.

3. The disadvantages of mutual funds are high cost over diversity, possible tax consequences and

the inability of management.

4. There are many type of mutual funds are available in India

5. Mutual funds are ways to buy and sell, an investor buy directly from the fund company or

through third party.

6. Mutual funds are very deceive

SUGGESTIONS

1. The branches should be increased that investors can properly communicate.

2. Proper training should be given to the agents so that they will solve the question of the customer

mind.

3. The promotional activities plays a vital role. So it should be given importance for creating more

awareness among the people.

4. More team leaders should be appointed

5. Good balance of consumer and competitors monitoring should be maintained. To compete with

the competitors, manager need conduct a customer value analysis to determine the benefit customer wants and how they perceive the relative value of competitors offer according to market requirement

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CONCLUSION

It is not where you invest is important. How you invest is important. The avenues of investment are not important. The technique of investment is important. Today, investment avenue, and products are being continually invented are reinvented. Investors, who remain passive about their investments, will suffer because of inflation, changes in interest rates, taxation and few of beneficial investment opportunities.

Expectation of investors (AIMS):

A- Appreciation

I- Income

M- Marketability

S- Security

The second is investors must know forget the AIMS of investments. Discipline is required to stick to these principles and not depart from them regardless of euphoria in the stock market or hype about new financial products. Also, just as there are objectives of investment planning, these are several tools to achieve these objectives. These tools are the post-tax rate, diversification, the setting of time horizons, systematic investments plan, and regular investment reviews, investors must never fail to use AIMS and the pools to benchmark and evaluate every investment avenue.

AWARENESS LEVEL:

Even though the first mutual fund was introduced in year 1963, the awareness about mutual fund is minimal amongst the Indian sawing class. Most of the Indians are unaware of a financial option called mutual funds. Till now, the major part of sawing goes into bank deposits, postal deposits and insurance. In the competitive business environment good performance of scheme of a particular mutual fund company mutual fund company plays a vital role in the minds of the existing investors will deciding to invest than the brand name of the AMC.

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BIBILOGRAPHY

www.bajaj capital.co.in www.wikiepedia.com www.Bogle’s asset allocation theory.com www.Graham’s asset allocation theory.com www.bse.com Risk and return/sinha/volume x Security market/Sinha/volume x AMFI

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MY EXPERIENCES DURING THE SIP

This SIP was my first industrial experience. During the SIP in Bajaj Capital provided me with a great deal of exposure to the financial market. I found myself in a professional working environment after quite a long gap. I’m sure the training which was given to me at Bajaj Capital would help me tremendously in the future

During the initial days of my SIP, I had many interactive sessions with various officials on their areas of expertise. I was lucky enough to have discussions with the Regional Head on various finance related topics. My interactions with these people gave me a rough idea of the entire financial products. I got many doubts cleared and concepts corrected.

I got a chance to interact with the sales people and tried to understand the way they sell Insurance and Investment products. I also accompanied them to different locations to meet customers. Though not told, I tried to sell some products and was quite successful as well. The Consumer Survey was the most difficult part of the SIP which continued for about two months. As the sample size was large, successfully completing the survey seemed next to impossible. The big problem I faced was in approaching people. Some were good enough to answer my questions while some others were quite hesitant. ” During May when the mercury levels were high, there were very few people who were patient enough to complete the entire questionnaire. Then came the rains and my survey slowed down a lot. Some days I could not even manage to get five questionnaires done.

This SIP taught me many things, I met different people and different types of people who were more or less nice. It won’t be wrong if I say that the SIP 2012 will remain unforgettable to me.

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QUESTIONNAIRE

Personal Details:

(a). Name:-(b). Add: - Contact No:-(c). Age:-(d). Qualification:-(e). Occupation. Pl tick (√) Govt. Sec [ ] Pvt. Sec [ ] Business[ ] Agriculture[ ] Others-----(g). What is your monthly family income approximately? Pl tick (√).

 Up toRs.10,000 [ ] Rs. 10,001 to15000 [ ] Rs. 15,001 to20,000[ ] Rs. 20,001 to30,000[ ] Rs. 30,001 andabove[ ]

A study of preferences of the investors for investment in mutual funds. 

1. What kind of investments you prefer most? Pl tick (√). All applicable  a. Saving account f. Shares/Debentures

b. Fixed deposits g. Gold/ Silver

c. Insurance h. Real Estate

d. Mutual Fund I. PPF

e. Post Office-NSC, etc j. PF

2. While investing your money, which factor you prefermost? Any one

a. Liquidity b.Low Risk c.High Return d.Company reputation

3. Have you ever invested your money in mutual fund?

a.Yes b.No If yes,

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a) Where do you find yourself as a mutual fund investor? Totally ignorant [ ] Partial knowledge of mutual funds [ ] Aware only of any specific scheme in which you invested [ ] Fully aware [ ]

b) In which kind of mutual you would like to invest? Public [ ] Private [ ]

  c) how do you come to know about Mutual Fund? a. Advertisement b. Peer Group c. Banks d. Financial Advisors

d) Which mutual fund scheme have you used? a.Open-ended e.Growth fund b.Close-ended f. Regular Income fund c.Liquid fund g. Long-Cap d.Mid- Cap h. Sector fund If no, a)If not invested in Mutual Fund then why? 

a. Not aware of MF b. Higher risk c. Not any specific reason 4). Which feature of the mutual funds allure you most?

Diversification [ ] Better return and safety [ ] Reduction in risk and transaction cost [ ] Regular Income [ ] Tax benefit [ ]

5. In which Mutual Fund you have invested? Please tick (√). All applicable.  a. SBIMF b. UTI c. HDFC d. Reliance e. ICICI prudential funds f. JM mutual fund g. Other. Specify-----------------------------------------------------------

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6. When you invest in Mutual Funds which mode of investment will you prefer?

a. One Time Investment b. Systematic Investment Plan (SIP)

7. Where from you invest mutual funds? Directly from the AMCs [ ] Brokers only [ ] Brokers/ sub-brokers [ ] Other sources [ ]8. Which AMC will you prefer to invest? Assets Management Co. a. SBIMF b. UTI c. Reliance d. HDFC e. Kotak  f. ICICI g. JM finance 9. Which sector are you investing in mutual fund sector? i.General 1st  ii.Oil and petroleum iii.Gold fund v.Power sector vi.Debt fund vii.Banking fund viii.Real estate fund ix.General 1st 10. How would you like to receive the returns every year?

a. Dividend payout b. Dividend re-investment c. Growth in NAV

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