study of mutual fund investment

A PROJECT REPORT

ON

“STUDY OF MUTUAL FUND INVESTMENT”

SUBMITTED TO

MAAER’S MIT SCHOOL OF BUSINESS

BY

JAYDEEP N. SONGRA

ROLL NO.:- 312514

BATCH NO.:- 31ST BATCH

IN PARTIAL FULFILLMENT OF

POST GRADUATE DIPLOMA IN MANAGEMENT (PGDM)

– FINANCE

2013-15

MAAER’S MIT SCHOOL OF BUSINESS

PUNE

2 | M I T S C H O O L O F B U S I N E S S

Table of Contents Declaration ............................................................................................................ 4

Certificate form the Company .............................................................................. 5

Certificate form Guide .......................................................................................... 6

Acknowledgement ................................................................................................ 7

Executive summary ............................................................................................... 8

I. Introduction ................................................................................................... 9

1. Company Profile: ................................................................................... 10

2. Objective of the study ............................................................................. 13

3. Limitation of the study ........................................................................... 13

II. Study of Mutual Fund ................................................................................. 14

1. Mutual Fund ........................................................................................... 14

2. History of the Mutual Fund industry in the India .................................. 15

3. Structure of the Mutual Fund ................................................................. 17

4. Scope of the Mutual Fund ...................................................................... 27

5. Types of Mutual Fund ............................................................................ 28

6. Risks involve in Mutual Fund ................................................................ 32

7. Portfolio Management ............................................................................ 33

8. Advantages and disadvantages of the Mutual Fund ............................... 38

9. Net assets value ...................................................................................... 41

10. Concepts of different loads .................................................................... 42

11. Factor are affecting to the Mutual Fund ................................................. 43

12. Role of Security Exchange Board of India ............................................ 43

13. Role of Association Mutual Fund in India ............................................. 44


14. Tax planning and Mutual Fund .............................................................. 45

15. Recent trend of Mutual Fund ................................................................. 45

III. Research Methodology .............................................................................. 48

IV. Data Processing and Analysis ................................................................... 51

V. Management lessons ................................................................................... 57

VI. Findings ..................................................................................................... 61

VII. Recommendation .................................................................................... 62

VIII. Conclusions ............................................................................................ 64


Declaration

I, Mr. JAYDEEP NARSHIBHAI SONGRA Hereby declare that this

project report is the record of authentic Work carried out by me during

the period from 1st April, 2014 to 31st may, 2014 and has not been

submitted to any other University or Institute for the award of any

degree / diploma etc.

Signature

Jaydeep Songra

Date


Certificate form the Company


Certificate form Guide


Acknowledgement The last two months with NJ INDIA INVEST PVT.LTD. Has been full of

learning and sense of contribution toward the organization. I would like to thank

NJ INDIA INVEST for giving me an opportunity of learning and contributing

through this project. I would like to thanks all the people who knowingly and

unknowingly supported me in my endeavour.

As a student of MIT SCHOOL OF BUSINESS, I would first of all like to express

my gratitude to Prof. Kshitija Soman for assigning me such a topic STUDY OF

MUTUAL FUND INVESTMENT to work upon in NJ INDIA INVEST

PVT.LTD.

During the actual project work, Prof. Kshitija Soman (Project Guide) has been a

source of inspiration through her constant guidance; personal interest;

encouragement and help. I convey my sincere thanks to her in project. I am also

grateful to her for responding Confidence in my abilities end giving me the

freedom to work on my project.

The project couldn’t have been completed without timely and vital help of Mr.

Ravindra Pansara (branch manager) other office staff. Special thanks to Mr. Kanji

Parmar and Mr.Vipul Tivedi for their invaluable guidance, keen interest, co-

operation, inspiration and of course moral support through my project session.


Executive summary

The project titled “Study of Mutual Fund Investment” being carried out for NJ

INDIA INVESTS PVT. LTD. Today an investor is interested in tracking the

value of his investments, whether he invests directly in the market or indirectly

through Mutual Funds. This dynamic change has taken place because of a number

of reasons. With globalization and the growing competition in the investments

opportunity available he would have to make guided and rational decisions on

whether he gets an acceptable return on his investments in the funds selected by

him, or if he needs to switch to another fund.

So this project is carried to understand the science of portfolio management that

Mutual Fund apply in order to trade off with risk and maximize return.

For understand the pattern of investment I filled questionnaire from the transfer

agent (financial adviser) of NJ and from the survey I found every Agent has at

least 50 clients. They have different portfolio according to their perception, and

risk profile investors. Sometimes investors may switches one assets class to

another that time adviser play important roll to hold in such assets class because

switching the underlying asset class affects returns.

This project is undertaken to help the investors in tracking the performance of

their investments in Mutual Funds and has been carried out with the objective of

giving performance analysis of Mutual Fund, which gives maximum possible

return.

The methodology for carrying out the project was very simple that is through

secondary data obtained through various mediums like fact sheet of the funds, the

Internet, Business magazines, Newspaper, etc. the analysis of Mutual Funds has

been done with respect to its various parameters.


I. Introduction The financial system of India is based on mainly four components like Financial

Market, Financial Institutions, Financial Service, and Financial Instruments. All

are very essential for smooth exercise for the exchange of the funds and allocation

of the funds. The main motive of the Indian financial system is that providing the

efficiently services to the capital market. The Indian capital market has been

increasing tremendously during the second generation reforms. The first

generation reforms started in 1991 the concept of LPG. (Liberalization,

privatization, Globalization)

Then after second generation reforms come into existence in the 1997 and still

it’s going on, in this reforms various things are include like fiscal policy, export-

import policy, reforms of industrial investment, reforms of public sector, reforms

of financial sector, reforms of foreign investment through the institutional

investors, reforms banking sectors. Over the last two decades have been huge

expansion in the geographical coverage and the financial spread of our financial

system.

The banking system is playing major role in promoting financial intermediation

of the economy and in the growth of financial saving and progressive

liberalisation of economic policies , there has been speedily growth in the capital

market , money market and financial services industry including merchant

banking, leasing and venture capital, leasing, hire purchasing. For the constant

growth of financial sector, it is need for the second generation to fruition of

financial sector. It’s also require efficient service to the investor mostly for the

small investor (minimum ₹ 1000 each month in some scheme ) in that point of

view the Mutual Fund play vital for better service to the small investors.


1. Company Profile:

An evolving, emerging & enterprising group with its roots in the financial

services sector and today expanding into newer horizons with great passion.

The vision of the group is to be pioneers in organizations determined by client

fulfilment, responsibility to excellence and passion for proceeded with value

creation for all stakeholders. This vision has helped us develop and construct the

trust of our clients and associate which is at the foundation of all that we do. Trust

is additionally at the heart of our prosperity and the driver for passion for our

success.

NJ Group is a leading player in the Indian financial service industry known for

its strong distribution abilities. The journey of NJ started in 1994 with the

establishment of NJ India Invest Pvt. Ltd., the leader organization, to cater to

investors’ needs in the financial service industry. Today, the NJ Wealth

Distributor Network, prior known as the NJ Fundz Network, began in 2003 is

among the biggest network of financial products distributor in India.

Throughout the years, NJ Group has diversified into different businesses and

today has the presence in businesses ranging from financial products distributor

network, asset management, real-estate, insurance broking, training and

development and innovation. Our rich experience in financial service,

consolidated with executional abilities and solid methodology & framework

orientation, has empowered us to shape a climbing development trajectory in our

businesses.

NJ Group is based out of Surat in Gujarat (India) and has vicinity in 97* areas in

India and has in excess of 1,100+* representatives.


1. Vision and Mission of the company

Vision:

To be the leader in our field of business through,

Total Customer Satisfaction

Commitment to Excellence

Determination to Succeed with strict adherence to compliance

Successful Wealth Creation of our Customers

Mission:

Ensure creation of the desired value for our customers, employees and

associates, through constant improvement, innovation and commitment to

service & quality. To provide solutions which meet expectations and

maintain high professional & ethical standards along with the adherence to

the service commitments

Services Philosophy:

Our primary measure of success is customer satisfaction …

We are committed to provide our customers with continuous, long-term

improvements and value-additions to meet the needs in an exceptional

way. In our efforts to consistently deliver the best service possible to our

customers, all employees of NJ will make every effort to:

Think of the customer first, take responsibility, and make prompt

service to the customer a priority.

deliver upon the commitments & promises made on time


Anticipate, visualize, understand, meet, exceed our customer’s

needs.

Bring energy, passion & excellence in everything we do

be honest and ethical, in action & attitude, and keep the customer’s

interest supreme

strengthen customer relationships by providing service in a

thoughtful & proactive manner and meet the expectations,

effectively

Investing Philosophy:

We aim to provide Need-based solutions for long-term wealth creation

We aim to provide all customers of NJ, directly or indirectly, with true,

unbiased, need-based solutions and advice that best meets their stated &

un-stated needs. In our efforts to provide quality financial & investment

advice, we believe that …

Clients want need-based solutions, which fits them

Long-term wealth creation is simple and straight

Asset-Allocation is the ideal & the best way for long-term wealth

creation

Educating and disclosing all the important facets which the customer

needs to be aware of, is important

The solutions must be unbiased, feasible, practical, executable,

measurable and flexible

Constant monitoring and proper after-sales service is critical to

complete the on-going process

At NJ our aim is to earn the trust and respect of the employees, customers,

partners, regulators, industry members and the community at large by

following our service and investing philosophy with commitment and

without exceptions.


2. Objective of the study To study the Mutual Fund industry.

To learn about the Mutual Fund investment patterns of investors.

To understand the role of financial (Mutual Fund) adviser in managing

their portfolio.

3. Limitation of the study Every work has its own limitation. Limitations are extent to which the process

should not exceed. Limitations of this project are:-

Duration of project was not enough to make a conclusion on such a vast

subject time. Constraint has become a big limitation.

The analysis is based on historical data and thus indicates the past

performance, which may not always be indicative of the future

performance.

Different schemes consider different market indices as their benchmarks,

but for purpose of uniformity in the study all schemes have to be compared

against same benchmark index.

Weekly NAV‟S have been considered for the study. Daily NAV‟s would

have given more precise result for the study.


II. Study of Mutual Fund

In a Mutual Fund, many investors contribute to form a common pool of money.

This pool of money is invested in accordance with an objective. The ownership

of the fund is thus joint of “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 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, a growth fund

would buy mainly equity assets – ordinary shares, preference, warrants, etc. An

income fund would mainly buy debt instruments such as debentures and bonds.

The fund’s assets are owned of the fund. Only then would he be in a position to

judge correctly whether his fund is performing well or not, and make the right

decision.

1. Mutual Fund Mutual Funds are a vehicle for retail and institutional investors to benefit from

the capital markets. They offer different kinds of schemes to cater to various types

of investors, retail, companies and institutions. Mutual Fund schemes are offered

to investors for the first time through a New Fund Offering (NFO). Thereafter,

close-ended schemes stop receiving money from investors, though these can be

bought on the stock exchange(s) where they are listed. Open-ended schemes sell

and re-purchase their units on an ongoing basis.

In the Mutual Fund industry KYC (know your client) process is centralized.

Therefore, investor have to complete formalities only for the one time with

designated service provider. The purpose of the Mutual Funds is small investor

as well as common people also can invest, therefore feature of the Mutual Fund

scheme is very low minimum investment amount. The expense ratio (which is

not more than 2.5% in many schemes, specially liquid and index funds and goes


below 0.05% in some schemes)being low also helps in making Mutual Funds a

good instrument for building wealth over the long term.

Mutual Funds are regulated by SEBI (Securities & Exchange Board of India)

under the applicable regulation is the SEBI (Mutual Fund) regulations, 1996.

Under this regulation, the Board of Trustees play vital role for the protecting of

interest of the investors in the Mutual Fund schemes. And another protective keep

on checking in the Mutual Fund system, while the asset management company

cater the investment management activities, investor records mainly maintained

registrar and transfer agent (RTA’s), who approaches their services to the

multiple Mutual Funds in the some cases.

2. History of the Mutual Fund industry in the India

The Mutual Fund industry in India started in 1963 with the formation of Unit

Trust of India, at the initiative of the Government of India and Reserve Bank of

India. The history of Mutual Funds in India can be broadly divided into four

distinct phases

1. First Phase - 1964-1987

Unit Trust of India (UTI) was established in 1963 by an Act of Parliament. It was

set up by the Reserve Bank of India and functioned under the Regulatory and

administrative control of the Reserve Bank of India. In 1978 UTI was de-linked

from the RBI and the Industrial Development Bank of India (IDBI) took over the

regulatory and administrative control in place of RBI. The first scheme launched

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

assets under management.

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

1987 marked the entry of non-UTI, public sector Mutual Funds set up by public

sector banks and Life Insurance Corporation of India (LIC) and General


Insurance Corporation of India (GIC). SBI Mutual Fund was the first non-UTI

Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec

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

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

established its Mutual Fund in June 1989 while GIC had set up its Mutual Fund

in December 1990.

At the end of 1993, the Mutual Fund industry had assets under management of

Rs. 47,004 crores.

3. Third Phase - 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian

Mutual Fund industry, giving the Indian investors a wider choice of fund families.

Also, 1993 was the year in which the first Mutual Fund Regulations came into

being, under which all Mutual Funds, except UTI were to be registered and

governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton)

was the first private sector Mutual Fund registered in July 1993.

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

comprehensive and revised Mutual Fund Regulations in 1996. The industry now

functions under the SEBI (Mutual Fund) Regulations 1996.

The number of Mutual Fund houses went on increasing, with many foreign

Mutual Funds setting up funds in India and also the industry has witnessed several

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

Funds with total assets of Rs. 1, 21,805 crores. The Unit Trust of India with Rs.

44,541 crores of assets under management was way ahead of other Mutual Funds.


4. Fourth Phase - Since February 2003

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

was bifurcated into two separate entities. One is the Specified Undertaking of the

Unit Trust of India with assets under management of Rs. 29,835 crores as at the

end of January 2003, representing broadly, the assets of US 64 scheme, assured

return and certain other schemes. The Specified Undertaking of Unit Trust of

India, functioning under an administrator and under the rules framed by

Government of India and does not come under the purview of the Mutual Fund

Regulations.

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

registered with SEBI and functions under the Mutual Fund Regulations. With the

bifurcation of the erstwhile UTI which had in March 2000 more than Rs. 76,000

crores of assets under management and with the setting up of a UTI Mutual Fund,

conforming to the SEBI Mutual Fund Regulations, and with recent mergers

taking place among different private sector funds, the Mutual Fund industry has

entered its current phase of consolidation and growth.

3. Structure of the Mutual Fund

The Mutual Funds in India are regulated by SEBI MF Regulations, 1996. Under

the regulations Mutual Fund is formed as a Public Trust under the Indian

Trusts Act, 1882. These regulations stipulate a three tiered structure of entities –

sponsor (creation), trustees, and Asset Management Company (fund

management) – for carrying out different functions of a Mutual Fund, but place

the primary responsibility on the trustees.

A typical Mutual Fund structure in India can be graphically represent as follow:


1. SEBI MF Regulations 1996 Securities and Exchange Board of India (SEBI) was formed in 1992 and was

given the regulatory responsibility of Capital markets and Mutual Funds. SEBI

formed Mutual Funds regulations in 1993 which were later replaced by new

regulations in 1996. SEBI guidelines provide for the trustees to maintain an arm’s

length relationship with the AMCs and do all those things that would secure the

right of investors.

Important steps taken by SEBI for the regulation of Mutual Funds:


1. Formation

Certain structural changes have also been made in the Mutual Fund

industry, as part of which Mutual Funds are required to set up asset

management companies with fifty percent independent directors, separate

board of trustee companies, consisting of a minimum fifty percent of

independent trustees and to appoint independent custodians

2. Registration

In January 1993, SEBI prescribed registration of Mutual Funds taking into

account track record of a sponsor, integrity in business transactions and

financial soundness while granting permission.

3. Document

The offer documents of schemes launched by Mutual Funds and the

scheme particulars are required to be vetted by SEBI. A standard format

for Mutual Fund prospectuses is being formulated.

4. Code of advertisement

Mutual Funds have been required to adhere to a code of advertisement.

That’s way we see the sentence “ Mutual Funds are subject to market risk

please read all document carefully before investing” in any Mutual Fund’s

advertisement.

5. Assurance on returns

SEBI has introduced a change in the Securities Control and Regulations

Act governing the Mutual Funds. Now the Mutual Funds were prevented

from giving any assurance on the land of returns they would be providing.

However, under pressure from the Mutual Funds, SEBI revised the

guidelines allowing assurances on return subject to certain conditions.


6. Minimum corpus

The current SEBI guidelines on Mutual Funds prescribe a minimum start-

up corpus of Rs.50 crore for an open-ended scheme, and Rs.20 crore corpus

for closed-ended scheme, failing which application money has to be

refunded. In fact, the Association of Mutual Funds in India (AMFI) has

repeatedly appealed to the regulatory authorities for scrapping the

minimum corpus requirements.

7. Institutionalisation

The efforts of SEBI have, in the last few years, been to institutionalise the

market by introducing proportionate allotment and increasing the

minimum deposit amount to Rs.5000 etc. These efforts are to channel the

investment of individual investors into the Mutual Funds.

8. Investment of funds mobilised

In November 1992, SEBI increased the time limit from six months to nine

months within which the Mutual Funds have to invest resources raised

from the latest tax saving schemes. The guideline was issued to protect the

Mutual Funds from the disadvantage of investing funds in the bullish

market at very high prices and suffering from poor NAV thereafter.

9. Investment in money market

SEBI guidelines say that Mutual Funds can invest a maximum of 25 per

cent of resources mobilised into money-market instruments in the first six

months after closing the funds and a maximum of 15 per cent of the corpus

after six months to meet short term liquidity requirements.

10. Valuation of investment

The transparent and well understood declaration or Net Asset Values

(NAVs) of Mutual Fund schemes is an important issue in providing

investors with information as to the performance of the fund. SEBI has

warned some Mutual Funds earlier of unhealthy market.


11. Inspection

SEBI inspect Mutual Funds every year. A full SEBI inspection of all the

27 Mutual Funds was proposed to be done by the March 1996 to streamline

their operations and protect the investor’s interests. Mutual Funds are

monitored and inspected by SEBI to ensure compliance with the

regulations.

12. Underwriting

In July 1994, SEBI permitted Mutual Funds to take up underwriting of

primary issues as a part of their investment activity. This step may assist

the Mutual Funds in diversifying their business.

13. Conduct

In September 1994, it was clarified by SEBI that Mutual Funds shall not

offer buy back schemes or assured returns to corporate investors. The

Regulations governing Mutual Funds and Portfolio Managers ensure

transparency in their functioning.

14. Voting right

In September 1993, Mutual Funds were allowed to exercise their voting

rights. Department of Company Affairs has reportedly granted Mutual

Funds the right to vote as full-fledged shareholders in companies where

they have equity investments.

2. Trustee The trust is created through a document called the trust deed which is executed

by the fund sponsor in favour of the trustees. Trustees manage the trust and are

responsible to the investors in the Mutual Funds. They are the primary guardians

of the unit-holders funds and assets. Trustees can be formed in either of the

following two ways -Board of Trustees, or a Trustee Company. The provisions

of Indian Trust Act, 1882, govern board of trustees or the Trustee Company. A

trustee company is also subject to provisions of Companies Act, 1956.


1. Obligation of Trustees

To ensure that the activities of the Mutual Fund are accordance with

SEBI (MF) regulation, 1996.

To check that the AMC has proper systems and procedures in place.

To make sure that all the other fund constituents are appointed and that

proper due diligence is exercised by the AMC in the appointment of

constituents and business associates.

All schemes floated by the AMC have to be approved by the trustees.

To review and ensure that the net worth of the AMC is as per the

regulatory norms.

To require to furnish to SEBI, on a half-yearly basis, a report on the

activities of AMC.

2. Regulation regarding appointment of Trustees

Sponsor with prior approval of SEBI appoints trustees. There should be at

least four members in the board of trustees with at least 2/3rd independent.

A trustee of one Mutual Fund cannot be trustee of another Mutual Fund,

unless he is an independent trustee in both cases and has the approval of

both the boards. The trustees are appointed by executing and registering a

trust deed under the provisions of Indian registration Act. This trust deed

is also registered with SEBI.

3. Responsibilities of Trustees

The Trustees are required to fulfil several duties and obligations in

accordance with SEBI (Mutual Funds) Regulations, 1996 and the Trust

Deed constituting the Mutual Fund. These include

The Trustee and the Asset Management Company enter into an

Investment Management Agreement (IMA) with the approval from

SEBI.


The Investment Management Agreement shall contain such clauses as

are mentioned in the Fourth Schedule of the SEBI (MFs) Regulations,

1996 and other such clauses as are necessary for making investments.

The Trustees shall have a right to obtain from the Asset Management

Company such information as is considered necessary by the Trustees.

The Trustee shall ensure before the launch of any scheme that the Asset

Management Company possesses/has done the following:

(a.) Systems in place for its back office, dealing room and accounting;

(b.) Appointed all key personnel including fund manager(s) for the

Scheme(s) and submitted their bio-data which shall contain the

educational qualifications, past experience in the securities market to

SEBI, within 15 days of their appointment;

(c.) Appointed Auditors to audit its accounts;

(d.) Appointed a Compliance Officer to comply with regulatory

requirement and to redress investor grievances;

(e.) Appointed Registrars and laid down parameters for their

supervision;

(f.) Prepared a compliance manual and designed internal control

mechanisms including internal audit systems; and g. Specified norms

for empanelment of brokers and marketing agents

3. Assets Management Company The Asset Management Company (AMC) is the investment Manager of the Trust.

The sponsor, or the trustees is so authorized by the trust deed, appoints the AMC

as the “Investment Manager” of the trust (Mutual Fund) via an agreement called

as ‘Investment Management Agreement’. An asset management company is a

company registered under the Companies Act, 1956. Sponsor creates the asset

management company and this is the entity, which manages the funds of the

Mutual Fund (trust). The Mutual Fund pays a small fee to the AMC for


management of its fund. The AMC acts under the supervision of Trustees and is

subject to the regulations of SEBI too.

Role of AMC :

The AMC is an operational arm of the Mutual Fund .AMC is responsible for

all carrying out all functions related to management of the assets of the trust.

The AMC structures various schemes, launches the scheme and mobilizes

initial amount, manages the funds and give services to the investors .In fact,

AMC is the first major constituent appointed .Later on AMC solicits the

services of other constituents like Registrar, Bankers, Brokers, Auditors,

Lawyers etc. and works in close co-ordination with them.

Restrictions on business activities of the Asset Management Company:

In India, regulator has ensured that an AMC focuses just on its core business

and that the activities of AMC’s are not in conflict of each other. These are

ensured through the following restrictions on the business activities of an

AMC.

An AMC shall not undertake any business activity except in the nature

of portfolio management services, management and advisory services

to offshore funds etc., provided these activities are not in conflict with

the activities of the Mutual Fund.

An AMC cannot invest in any of its own schemes unless full disclosure

of its intention to invest has been made in the offer document.

An AMC shall not act as a trustee of any Mutual Fund.

The Chairman of the AMC is not a trustee of any Mutual Fund


4. Custodian and Depository The fund management includes buying and selling of securities in large volumes.

Therefore, keeping a track of such transactions is a specialist function. The

custodian is appointed by trustees for safekeeping of physical securities while

dematerialised securities holdings are held

in a depository through a depository

participant. The custodian and depositories

work under the instructions of the AMC,

although under the overall direction of

trustees.

The most important asset of any Mutual

Fund is its portfolio (cash and investments).

It is very important to ensure safety of the

cash and investments. This responsibility of

safe keeping the securities lies with

the custodian. Securities, which are in

material form, are kept in safe custody of a

custodian and securities, which are in “De-

Materialized” form, are kept with a

Depository participant, who acts on the

advice of custodian.

Custodian performs a very important back office operation. They ensure that

delivery has been taken of the securities, which are bought, and that they are

transferred in the name of the Mutual Fund. They also ensure that funds are paid

out when securities are bought. They keep the investment account of the Mutual

Fund. They collect and account for the dividends and interest receivables on

Mutual Fund investments. They also keep track of various corporate actions like

CUSTODIAN AND DEPOSITORY


bonus issue, rights issue, and stock split; buy back offers, open offer etc. and act

on these as per instructions of the Investment manager.

The Custodian normally charge portfolio fee, transaction fee and out-of –pocket

expenses in accordance with the terms of the Custody Agreement and as per any

modification made thereof from time to time.

5. Registrar and Transfer Agents The registrar and transfer agents are appointed by AMC. And AMC pay

commission to these agent for

their service. They are carry out

following functions.

Receiving and processing

the application forms of

investors.

Issuing unit certificates.

Sending refund orders.

Giving approval for all

transfer of units and

maintaining records.

Repurchasing the units and

redemption of units.

Issuing dividend or income

warrants.

REGISTRAR AND TRANSFER AGENTS


6. Schemes Under the Mutual Fund Regulations, a Mutual Fund is allowed to float different

schemes. Each scheme has to be approved by the trustees and the offer document

is required to be filed with the SEBI. The offer document should contain

disclosures which are adequate enough to enable the investors to make informed

investment decision, including the disclosure on maximum investments proposed

to be made by the scheme in the listed securities of the group companies of the

sponsor. If the SEBI does not comment on the contents of the offering documents

within 21 days from the date of filing, the AMC would be free to issue the offer

documents to public.

4. Scope of the Mutual Fund Scope of Mutual Funds has grown enormously over the years. In the first age of

Mutual Funds, when the investment management companies started to offer

Mutual Funds, choices were few. Even though people invested their money in

Mutual Funds as these funds offered them diversified investment option for the

first time. By investing in these funds they were able to diversify their investment

in common stocks, preferred stocks, bonds and other financial securities. At the

same time they also enjoyed the advantage of liquidity. With Mutual Funds, they

got the scope of easy access to their invested funds on requirement.

But, in today’s world, Scope of Mutual Funds has become so wide, that people

sometimes take long time to decide the Mutual Fund type, they are going to invest

in. Several Investment Management Companies have emerged over the years who

offer various types of Mutual Funds, each type carrying unique characteristics

and different beneficial features.

To understand the broad scope of Mutual Funds we need to discuss the main types

of Mutual Funds that are normally offered by the Mutual Companies.


5. Types of Mutual Fund

1. By Constitution 1. Open Ended

This scheme is freely allows investor to buy or sell units at any point of time

and there will not be any maturity time for the scheme. Such investment

schemes are open to subscription at any time of the year and come with no

maturity date. Units can be purchased daily based on the NAV (Net Asset

Value) determined by the fund houses. Investors can exit from such a scheme

anytime by redeeming the Mutual Fund units based on the NAV and exit

conditions, upon which the redeemed amount is paid to the investor. In open

ended schemes, the money is invested in stock market, securities etc. based on

the investment objectives.

2. Closed Ended


Since such investment schemes come with maturity date, they are not open to

subscription anytime. Close ended schemes are of two types:

a) Fixed Maturity Plans – Fixed Maturity Plans or FMPs are Mutual Fund

schemes that come with a fixed maturity date and cannot be redeemed within

that period. Alternatively, the units can be sold to a buyer in stock exchange.

b) Capital Protection Plans – As the name suggests, the sole purpose of such

Mutual Funds is to offer capital protection. Being low risk plans, they offer

lower returns.

2. By an Investment Objective A scheme can also be classified as growth scheme, income scheme, or balanced

scheme considering its investment objective. Such schemes may be open-ended

or close-ended schemes as described earlier. Such schemes may be classified

mainly as follows:

1. Equity Funds

The aim of growth funds is to provide capital appreciation over the medium

to long- term. Such schemes normally invest a major part of their corpus in

equities. Such funds have comparatively high risks. These schemes provide

different options to the investors like dividend option, capital appreciation,

etc. and the investors may choose an option depending on their preferences.

The investors must indicate the option in the application form. The Mutual

Funds also allow the investors to change the options at a later date. Growth

schemes are good for investors having a long-term outlook seeking

appreciation over a period of time.


2. Diversified Funds

An investment fund that contains a wide array of securities to reduce the

amount of risk in the fund. Actively maintaining diversification prevents

events that affect one sector from affecting an entire portfolio, make large

losses less likely.

Tax Saving Funds

Tax Saving Funds in India are also known as equity-linked savings

schemes. Tax Saving Funds in India provide tax rebates under Section

88 of the Income Tax Act. They are beneficial for those investors who

want to benefit from the rebates that are given in taxes.

Tax Saving Funds in India are suitable for those investors who want to

increase their investments and also want to benefit from the rebates in

taxes. The advantage of Tax Saving Funds in India is that they grant the

investors an opportunity to make investments in an avenue that is

market- linked and at the same time claim benefits in taxes.

Index Finds

Index Funds replicate the portfolio of a particular index such as the BSE

Sensitive index, S&P NSE 50 index (Nifty), etc. These schemes invest

in the securities in the same weightage comprising of an index. NAVs

of such schemes would rise or fall in accordance with the rise or fall in

the index, though not exactly by the same percentage due to some

factors known as "tracking error" in technical terms. Necessary

disclosures in this regard are made in the offer document of the Mutual

Fund scheme. There are also exchange traded index funds launched by

the Mutual Funds which are traded on the stock exchanges.


Sectorial Fund

Mutual Funds which invest in a particular sector or industry are said to

be sector-specific funds. Since the portfolio of such Mutual Funds

consists mainly of investment in one particular type of sector, like real

estate, service sector, automobile, steel sector etc., they offer less

amount of diversification and are considered to be risky.

3. Debt Funds

The aim of debt funds is to provide regular and steady income to investors.

Such schemes generally invest in fixed income securities such as bonds,

corporate debentures, Government securities and money market instruments.

Such funds are less risky compared to equity schemes. These funds are not

affected because of fluctuations in equity markets. However, opportunities of

capital appreciation are also limited in such funds. The NAVs of such funds

are affected because of change in interest rates in the country. If the interest

rates fall, NAVs of such funds are likely to increase in the short run and vice-

versa. However, long term investors may not bother about these fluctuations.

4. Balance/Hybrid Funds

The aim of balanced funds is to provide both growth and regular income funds

because such schemes invest both in equities and fixed income securities in

the proportion indicated in their offer documents. These are appropriate for

investors looking for moderate growth. They generally invest 40-60% in

equity and debt instruments. These funds are also affected because of

fluctuations in share prices in the stock markets. However, NAVs of such

funds are likely to be less volatile compared to pure equity funds

5. Money Market Funds

These funds are also income funds and their aim is to provide easy liquidity,

preservation of capital and moderate income. These schemes invest

exclusively in safer short-term instruments such as treasury bills, certificates


of deposit, commercial paper and inter-bank call money, government

securities, etc. Returns on these schemes fluctuate much less compared to

other funds. These funds are appropriate for corporate and individual investors

as a means to park their surplus funds for short periods.

6. Gilt funds

These funds invest exclusively in government securities. Government

securities have no default risk. NAVs of these schemes also fluctuate due to

change in interest rates and other economic factors as is the case with income

or debt oriented schemes.

6. Risks involve in Mutual Fund Some of the risks that are associated with the Mutual Funds are listed below.

1. Call risk – this is one of the types of the risks that is involved with the

Mutual Funds. When the rate of interest falls the person who has issued

bonds will redeem or otherwise known as go for the call option. The issuer

has the right to redeem it before the maturity rate. So when the interest rate

is low they will redeem at the best value.

2. Country risk – this is another risk which rises because of the political

events like war or change in the government leading to change in policies,,

natural disasters like earthquake or floods or financial issue like issues due

to inflation. All these will definitely reduce the investments as well as the

value of the investments.

3. Credit Risk – there is small possibility that the person who has issued the

bond might not return the interest or the capital as well.

4. Currency Risk – there can be fluctuations in the market because of the

fluctuations in the currency.

5. Income Risk – when there is a fall in the interest rate there are chances the

dividend income from the fixed income funds may reduce.

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6. Industry risk – when there is a development in the industry there are

chances that the value of the stock that is associated with that industry will

reduce.

7. Inflation risk – when the cost of living increases then the funds that have

returns after the inflation adjustment is done will face a lot of risks.

8. Interest rate risk – when the rate of interest increases then the value of

the bond will reduce. This again is a risk which is associated with the funds.

9. Manager Risk – there are some chances that the person who is managing

the funds might not invest it wisely. This is a very big risk so choosing an

advisor has to be done carefully.

10. Principal risk – there are remote chances that of losing the principal.

7. Portfolio Management

You open up a newspaper, you get to know ICICI Prudential Focused Blue-chip

is a good Mutual Fund. After a few hours, you switch on your television, you find

HDFC Top 200 is a good fund and there is a big list of other Mutual Funds which

you are unable to recognize and remind. But how many Mutual Funds should you

have in your portfolio and what type of Mutual Funds should you have. This is a

not a single word answer. Rather the asset allocation strategies should depend

upon various factors and depends upon the risk profile of the investor. According

to the risk profile of an investor one can categorize an investor into 3 types:

1. Asset allocation strategy for Aggressive Risk Investor

An investor with an aggressive approach to investing is comfortable accepting

high volatility in their capital value, with the risk of short to medium-term periods

of negative returns. They are generally willing to trade higher risk for greater

long-term returns and typically will be having a longer investment horizon. The

investment portfolio will consist of a larger proportion of shares and with little


fixed interest or defensive assets exposure. It is typically suited to an investor

seeking long-term capital appreciation and who is comfortable with short term

fluctuations in his capital value. A typical investment portfolio will contain 5 %

in income funds, 5 % in liquid funds, 15 % in gold Mutual Funds and 75% in

equity Mutual Funds

Logic: The logic behind this asset allocation is to generate an average return in

the range of 15 % to 18% over an investment horizon of 5 to 10 years. For

generating this type of return higher risk and ability to digest losses is required

and in reality very few investors have the courage to sail through losses

2. Asset allocation model for Moderate Risk Investor

An investor with a moderate approach to investing is usually seeking a diversified

investment portfolio with exposure to a broad range of investment sectors.

Investments will include a diversified mix of balanced, equity, debt, gold and

MIP funds.

Investors need to accept some short-term fluctuations in their capital value in

return for higher returns which are anticipated to be higher than a conservative

investor. A moderate portfolio is typically suited to an investor who either seeks

to diversify risk with reasonable returns or who has a medium-term investment

horizon (minimum of 3 to 5 years). A typical investment portfolio for a moderate

investor will contain 20% in income funds, 5 % in liquid funds 10% in gold

Mutual Funds and 65% in equity Mutual Funds

Logic: The logic behind this asset allocation strategy is to generate an average

return in the range of 11 % to 13% p.a. over an investment horizon of 3 to 5 years


3. Investment portfolio strategy for Conservative Risk Investor

An investor with a conservative approach to investing is generally seeking to

preserve capital and is usually prepared to accept lower investment returns. The

main emphasis is on defensive assets because he cannot tolerate any erosion of

capital. A conservative portfolio is typically suited to an investor who prefers

reliable consistent returns or who has a short-term investment horizon. People

who are in the retirement phase would generally be looking to invest in income

Mutual Funds which invest primarily in the debt market. There should be a

limited exposure to equity Mutual Funds since equity Mutual Funds returns are

subject to stock market risks and volatility. A typical investment portfolio or asset

allocation model for a conservative investor will contain 75 % in income

funds/debt funds/fixed deposits, 10% in liquid funds, 5 % in gold Mutual Funds

and in 10% in equity Mutual Funds. It is not necessary that only senior citizens

prefer such an asset allocation. Youngsters who don’t wish to take risk also prefer

such an asset allocation.

Logic: The logic behind this strategic asset allocation is to generate an average

return in the range of 9 % to 10% P.A. over an investment horizon of 1 to 3 years.

4. How many Mutual Funds should you have in your portfolio

On an average an investor should be contented with around 8 Mutual Fund

schemes in his portfolio

These 10 schemes can be selected from the various earlier discussed categories

of Income, Liquid, Gold, and Equity

In equity the client can choose a combination of large cap and midcap funds

Increasing the number of schemes does not solve any purpose beyond this limit

and it becomes difficult to manage the Mutual Fund portfolio


I have seen several clients having portfolio’s containing 30 to 50 schemes.

Managing and keeping a watch over the schemes becomes difficult for the client

as well as the Investment Advisor. As long as a client is invested in the consistent

best performing schemes across different categories the objective is served. An

investor may not get the best returns in the Mutual Fund schemes wherein he is

invested, since the scheme’s rank shall keep on fluctuating across different time

frames calculated on a weekly, monthly, quarterly, six monthly, half yearly,

yearly basis etc.

What’s important is that the chosen scheme continues to be an above average

performer in the particular Mutual Fund category.

Hence a client should not be running behind the top performing schemes in each

category since the rank is momentary. What’s important is the consistency of

average performance by the scheme. Some of the best performing Mutual Funds

can be:

5. Performance of Schemes


Review of your Mutual Fund portfolio: A monthly or a quarterly portfolio review

meeting with your Investment Advisor is essential to ensure that the chosen

schemes in your Mutual Fund portfolio are delivering good returns in the chosen

category.

I recommend aggressive category investors to review their Mutual Fund portfolio

every month whereas conservative category investors would be fine with a

quarterly portfolio review.

A review ensures that you stay invested in the best performing Mutual Fund

schemes at all given times throughout the year


8. Advantages and disadvantages of the Mutual Fund

Advantages of the Mutual Fund Mutual Funds are designed for the provide maximum benefits to the investors,

and in order to achieve objective of the Mutual Fund scheme fund manager have

research team , their work to keep on checking update and invest accordingly.

Asset Management Company has various type of industrial funds, which need to

clear planning for the strategic investment and to achieve targeted market return.

And following are the advantages of the Mutual Fund

1. Portfolio Diversification

The main advantage of the Mutual Fund is diversification of the portfolio,

Mutual Funds investment diversified in the various securities

2. Choice of Schemes

Mutual Funds investment gives lots of schemes to investor with various type

of objective of investment. And investor can correlate their financial goal and

investment objective with the scheme. Further investor can set their map for

the financial goal, that’s where he actually want to go.

3. Transparency

Funds provide to the investor update information about the market and scheme

and all material facts are shows to investor as needed by the regulator.

Therefore Mutual Funds facilitates transparency to the investor.

4. Liquidity

An investor may not be able to trade some shares held by him very easily and

speedily but Mutual Fund are more liquid. Investor can buy or sell share easily

and quickly.

5. Low Transaction Costs

In Mutual Funds investment due to economies of scale.it pay lesser transaction

costs. And these benefits are distributed in investors.


6. Less Risk

Investors purchase diversified portfolio of securities and even also in small

investment in the Mutual Fund.

7. Flexibility

As per the convenience of investor, he can switch their scheme from to another

scheme easily at any point of time.

8. Safety

A lessened portfolio danger is accomplished through the utilization of

expansion, as most Mutual Fund will invest into anyplace from 50 to 200

separate securities - relying upon their focus. A few record stock Mutual Fund

possess 1,000 or more individual stock positions.

9. Dividend reinvestment

As profits and other premium salary is proclaimed for the trust, it might be

utilized to buy extra share in the Mutual Fund, consequently helping your

speculation develop.

10. Portfolio management

You pay an administration expense as a major aspect of your cost proportion,

which is utilized to contract an expert portfolio chief who purchases and offers

stocks, bonds, and so forth. This is a moderately little cost to pay for help in

the administration of a venture portfolio.

Disadvantages of Mutual Funds

1. High Expense Ratios and Sales Charges

In case you're not giving careful consideration to Mutual Fund cost degrees

and deals charges, they can escape hand. Be extremely wary when putting

resources into funds with cost degrees higher than 1.20%, as they will be

considered on the higher expense end. Be tired of 12b-1 publicizing charges


and deals charges as a rule. There are a few great fund organizations out there

that have no deals charges. Charges diminish general financing returns.

2. Management Abuses

Beating, turnover and window dressing may happen if your director is

mishandling his or her power. This incorporates unnecessary exchanging,

extreme substitution and offering the failures preceding quarter-end to alter

the books.

3. Charge Inefficiency

Like it or not, investor don't have a decision regarding capital addition pay-

outs in Mutual Funds. Because of the turnover, redemption, gain and losses in

security property all through the year, investor commonly accept circulations

from the fund that are a wild assessment occasion.

4. Poor Trade Execution

In the event that you put your Mutual Fund exchange at whatever time before

the cut-off time for same-day NAV, you'll get the same shutting cost NAV for

your purchase or offer on the Mutual Fund. For investors searching for

speedier execution times, possibly as a result of short financing skylines, day

exchanging, or timing the market, Mutual Funds give a weak execution

methodology.


9. Net assets value

Net Asset Value, or NAV, is the sum total of the market value of all the shares

held in the portfolio including cash, less the liabilities, divided by the total number

of units outstanding. Thus, NAV of a Mutual Fund unit is nothing but the 'book

value.

NAV vs Price of an equity share

In case of companies, the price of its share is 'as quoted on the stock exchange,'

which apart from the fundamentals, is also dependent on the perception of the

company's future performance and the demand-supply scenario. And hence the

market price is generally different from its book value.

There is no concept as market value for the MF unit. Therefore, when we buy MF

units at NAV, we are buying at book value. And since we are buying at book

value, we are paying the right price of the assets whether it be Rs 10 or Rs.100.

There is no such thing as a higher or lower price.

NAV and its impact on the returns

We feel that a MF with lower NAV will give better returns. This again is due to

the wrong perception about NAV. An example will make it clear that returns are

independent of the NAV.

Say, you have ₹ 10,000 to invest. You have two options, wherein the funds are

same as far as the portfolio is concerned. But say one Fund X has an NAV of ₹

10 and another Fund Y has NAV of ₹ 50. You will get 1000 units of Fund X or

200 units of Fund Y.

After one year, both funds would have grown equally as their portfolio is same,

say by 25%. Then NAV after one year would be ₹ 12.50 for Fund X and ₹ 62.50


for Fund Y. The value of your investment would be 1000*12.50 = ₹ 12,500 for

Fund X and 200*62.5 = ₹ 12,500 for Fund Y. Thus your returns would be same

irrespective of the NAV.

It is quality of fund, which would make a difference to your returns. In fact for

equity shares also broadly this logic would apply.

An IT company share at, say, ₹ 1,000 may give a better return than say a jute

company share at ₹ 50, since IT sector would show a much higher growth rate

than jute industry (of course ₹ 1000 may 'fundamentally' be over or under priced,

which will not be the case with MF NAV).

Misconception about NAV

This situation arises from the perception that a fund at ₹ 10 is cheaper than say ₹

15 or ₹ 100. However, this perception is totally wrong and investors would be

much better off once they appreciate this fact.

Two funds with same portfolio are same, no matter what their NAV is. NAV is

immaterial.

Why people carry this perception is because they assume that the NAV of a MF

is similar to the market price of an equity share. This, however, is not true. That

would be more specify by NAV’s formula.

𝑁𝐴𝑉 =(𝐴𝑠𝑠𝑒𝑡𝑠 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑓𝑢𝑛𝑑 − 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 𝑜𝑓 𝑓𝑢𝑛𝑑)

𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑖𝑛𝑔 𝑢𝑛𝑖𝑡𝑠 𝑜𝑓 𝑡ℎ𝑒 𝑓𝑢𝑛𝑑

10. Concepts of different loads Entry Load

The load charged at the time of investment that load called as Entry Load. It’s

mean to cover cost that Assets Management Company spends in processing

acquiring subscriber’s commission payable to brokers for the different cost like

advertisements, register fees etc. This charge will recover by selling NAV at

higher price.


Exit Load

Some company may not charge entry load but all company charge exit load it

might be around 1 % on redemption.

11. Factor are affecting to the Mutual Fund Mutual Fund performance can be affected by many different factors, including

the individual investments that are chosen by the Mutual Fund manager. The

asset allocation of the fund also plays a big role in Mutual Fund performance.

While it is generally not quoted as part of the performance, the fees that are

charged by the Mutual Fund Company also can affect the true performance of

the fund.

12. Role of Security Exchange Board of India

An index fund scheme’ means a

Mutual Fund scheme that invests in

securities in the same proportion as an

index of securities;” A Mutual Fund

may lend and borrow securities in

accordance with the framework relating

to short selling and securities lending

and borrowing specified by the Board.

“A Mutual Fund may enter into short

selling transactions on a recognized

stock exchange, subject to the

framework relating to short selling and securities lending and borrowing specified

by the Board.” “Provided that in case of an index 13

Fund scheme, the investment and advisory fees shall not exceed three fourths of

one percent (0.75%) of the weekly average net assets. “

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“Provided further that in case of an index fund scheme, the total expenses of the

scheme including the investment and advisory fees shall not exceed one and one

half percent (1.5%) of the weekly average net assets.” Every Mutual Fund shall

buy and sell securities on the basis of deliveries and shall in all cases of purchases,

take delivery of relevant securities and in all cases of sale, deliver the securities:

Provided that a Mutual Fund may engage in short selling of securities in

accordance with the framework relating to short selling and securities lending and

borrowing specified by the Board: Provided further that a Mutual Fund may enter

into derivatives transactions in a recognized stock exchange, subject to the

framework specified by the Board.”

13. Role of Association Mutual Fund in India

The Association of Mutual Funds in India (AMFI) is dedicated to developing the

Indian Mutual Fund Industry on professional, healthy and ethical lines and to

enhance and maintain standards in all areas with a view to protecting and

promoting the interests of Mutual Funds and their unit holders.

AMFI working group on Best Practices for sales and marketing of Mutual Funds

under the Chairmanship of Shri B. G. Daga, Former Executive Director of Unit

Trust of India with Shri Vivek Reddy of Pioneer ITI, Shri Alok Vajpeyi of DSP

Merrill Lynch, Shri Nikhil Khattau of Sun F & C and Shri Chandrasekhar Sathe,

Formerly of Kotak Mahindra Mutual Fund has suggested formulation of

guidelines and code of conduct for intermediaries and this work has been ably

done by a sub-group consisting of Shri B. G. Daga and Shri Vivek Reddy.


14. Tax planning and Mutual Fund Investors in India opt for the tax-saving Mutual Fund schemes for the simple

reason that it helps them to save money. The tax-saving Mutual Funds or the

equity-linked savings schemes (ELSS) receive certain tax exemptions under

Section 88 of the Income Tax Act. That is one of the reasons why the investors

in India add the tax-saving Mutual Fund schemes to their portfolio. The tax-

saving Mutual Fund schemes are one of the important types of Mutual Funds in

India that investors can option for. There are several companies in India that offer

– tax – saving Mutual Fund schemes in the country.

15. Recent trend of Mutual Fund India is at the first stage of a revolution that has already peaked in the U.S. The

U.S. boasts of an Asset base that is much higher than its bank deposits. In India,

Mutual Fund assets are not even 10% of the bank deposits, but this trend is

beginning to change. Recent figures indicate that in the first quarter of the current

fiscal year Mutual Fund assets went up by 115% whereas bank deposits rose by

only 17%. (Source: Think-tank, the Financial Express September, 99) This is

forcing a large number of banks to adopt the concept of narrow banking wherein

the deposits are kept in Gilts and some other assets which improves liquidity and

reduces risk. The basic fact lies that banks cannot be ignored and they will not

close down completely. Their role as intermediaries cannot be ignored.

Improved market sentiments helped mutual funds' assets under management

(AUM) soar by over Rs 1.5 lakh crore to touch Rs 8.2 lakh crore in 2012-13.

Excluding the domestic Fund of Funds, wherein a mutual fund scheme invests in

various funds, HDFC MF retained its top slot with AUM of Rs 1, 01,720 crore,

followed by Reliance Mutual Fund (Rs 94,580 crore), ICICI Prudential Mutual

Fund (Rs 87,835 crore), Birla Sun Life Mutual Fund (Rs 77,046 crore) and UTI

Mutual Fund (Rs 69,450 crore) in the top five list


Comparison of investment in Banks V/S Mutual Funds

Particular Banks Mutual Funds

Return Low Better

Administered Expenses High Low

Risk Low Moderate

Investment Option Less More

Network High penetration Low but improving

Liquidity At a cost Better

Quality of assets Not transparent Transparent

Calculation of interest Minimum balance

between 10th and 30th of

every month

Everyday

Guarantee Maximum ₹ 1 lakh on

deposits

None


III. Research Methodology

“A research is a careful investigation or enquiry, especially through search for

new facts in any branch of knowledge. It is a systemized effort to gain more

knowledge.”

“Research Methodology is a way to systematically solve the research problem. It

includes not only the research methods, but also the logic behind using the

methods.”

The methods of research used in this project were as follows:-

1. Analytical Research

In analytical research the researcher has to use the facts already available, and

analyse these to make the critical evaluation of the material.

In this project I have used many raw data from the various sources and analysed

it for underlying trends.

2. Applied Research

Applied Research aims at finding a solution for an immediate problem. Research

aimed at certain conclusions (say a solution) facing a concrete social or business

problem is an example of applied research. Thus the central aim of applied

research is to find a solution for some pressing practical problem.

I. Research Problem

To know the investor’s behaviour about Mutual Fund as an investment

avenue.

II. Objectives of Research

1. Primary objective: To know the investor’s behaviour about Mutual Fund

as an investment avenue.

2. Secondary objectives

To study the objectives of the investors for investing in Mutual Fund.


To know investment patterns of investors.

To find out which scheme would be better for the investor according their

need, perception about investment and their nature (whether they

aggressive or conservative).

III. Research Plan

1. Data source

I have used primary data source to collect the date regarding investor’s

behaviour about Mutual Fund investment. The survey was conducted

through NJ’s Agents (financial adviser) across Jamnagar. From the Mutual

Fund adviser of NJ, I got general idea about Mutual Fund investment.

2. Survey approach

Survey approach was under taken for the study of Mutual Fund investment

form the financial adviser of Mutual Fund rather than directly to investor

for the purpose of find out overall investment of Mutual Fund.

3. Research instrument

Questionnaire was the instrument of getting data.

IV. Sampling Plan

1. Sample unit: all investors are occasionally and regularly invest in financial

assets or non-financial assets.

2. Sample size: survey population includes businessmen, professionals and

individual investors were approx. 50 per financial adviser and I have

randomly selected 30 financial adviser.

3. Sampling method

In this study as suggested by company’s branch manager sample of this

agent (Mutual Fund adviser) was selected and it was as non-probabilistic

method. Because all these people could not interviewed as per our

requirement but we can randomly select them in monthly agent meet.


4. Contact method

The total sample size for survey was 30 agent (Mutual Fund adviser) by

personal interview.


IV. Data Processing and Analysis Q1. Gender

There are 7 female and 23 male respondents.

Q2. What is your age?

Age group No of Agent

18 to 25 12

25 to 40 14

40 to 65 3

Above 65 1

Grand Total 30

From the above table we can say that amount of young MF adviser are more

because 12 are between 18 to 25 years and 14 are 25 to 40 year out of 30.that

mean level of enthusiasm in field of selling financial product is more in young

generation and this benefits to the client to not need to change the financial

adviser and young people have more enthusiasm to get more money so, they are

provide good service to the client.

Q3. What is your monthly Income?

Monthly Income No of Agents

Below ₹ 20,000 2

₹ 20,000 to ₹ 40,000 16

₹ 40,000 to ₹ 60,000 9

Above ₹ 60,000 3

Grand Total 30

7

23

Gender of Repondents

Female Male


From the above table we can see the income or total commission of the financial

adviser. Therefore here we can see that 16 are getting between ₹ 20000 to ₹40000

monthly. That quit good amount but we can indirectly analyse here investment

from the client because commission are calculated on total investment amount

from the agent. Therefore if we assuming maximum 3% (trial0.5 and upfront 2.5)

then amount of investment form the one agent will be 10, 00,000((average of

20000 and 400000) (30000*100/3)) in the case of 20000 to 40000 income level.

Q4. How long have you been with NJ?

Particular No of Agents

1 Years 4

2 Years 3

3 Years 9

4 Years 5

5 Years 5

6 Years 4

Grand Total 30

From the above table we can know about awareness of NJ and Mutual Fund in

the market.

Q5. What made you join NJ India invest Pvt. Ltd.?


Good Commission 1

Good Service 3

Good Service, Good Commission 4

Good Service, Transparency , One door-Multiple Solution,

Good Commission

1

One door-Multiple Solution 11

Other 1

Transparency 1

Transparency , One door-Multiple Solution, Good Commission 7

Transparency , Other 1

Grand Total 30


Form the above table we can see that more number of agents have chosen one

door multiple solution. Therefore it also help to investor for any kind of service

like switch one scheme to another AMC’ scheme they can switch from the single

platform. They need not to go one AMC to other.

Q6. Which insurance company do you belong to?


BIRLA SUN LIFE 1

HDFC STANDARD LIFE INSUARANCE CO.LTD 2

ICICI LIFE INSURANCE 7

LIFE INSURANCE CORPORATION 13

OTHER 4

RELIENCE LIFE INSURANCE. 3

Grand Total 30

Form the above table we can see that more number of agents are from LIC.

Q7. Do you believe Insurance companies gives higher commission than

Mutual Fund companies?


No 10

Yes 20

Grand Total 30

Form the above table we can see that 20 people said that Mutual Fund gives high

commission than insurance company. In Mutual Fund agents get two type of

commission upfront and trial these are lower rate but in the long term the amount

of commission will be higher than insurance because the effect of compounding.


Q8. How many clients do you have at present?


100 to 200 8

200 to 400 5

50 to 100 6

500 to 1000 7

And above 1000 1

Below -50 3

Grand Total 30

Form the above table we can see that only 3 agents have less than 50 clients and

rest of has more than 100 clients

Q9. From your total client base, how many have invested in Mutual Fund

approximately (%)?


0 to 25 % 9

25 to 50 % 21

Grand Total 30

From the above table we can see that 21 agents say 25% to 50% are invest in

Mutual Fund. That means rest of 50 % people are not invest in Mutual Fund

reasons may be not proper knowledge or they are not want to take any type of

risk or not aware properly.

Q10. Please select the bifurcation of your total investments.

Bifurcation in % SIP DEBT EQUITY BALANCE LIQUID

0 to 25 % 14 7 19 8 12

25 to 50 % 8 10 5 12 11

50 to 75% 8 13 4 8 6

75 to 100% 0 0 2 2 1

Total 30 30 30 30 30


Form the above graph we can see that investors are diversified their portfolio

according to their nature or perception about investment. Investors can be

classified in to three with respect risk:

1. Aggressive Risk Investors:

Aggressive risk investors invest in equity fund with large portion of their

portfolio.

2. Moderate Risk Investors:

They invests in equity but invest in fixed income security at the same

time.

3. Conservative Risk Investors:

This type of investor are does not want to take any risk. They just want

earn fixed return.

From the responses from the agent. It show that investment in SIP is more. The

reason behind is SIP is such type of investment which small investor also can

afford.

0

2

4

6

8

10

12

14

16

SIP DEBT EQUITY BALANCE LIQUID

NO

Of

AG

ENTS

ASSETS CLASS

BIFURCATION OF INVESTMENT

0%to 25% 25% to 50 % 50%to 75% 75% to 100%


If we look at debt fund the number of agents are more whose have 50 % to 75%

investors are invest in Debt fund. That means most of investors are conservative

risk nature and also possible Indian economy was in regression “between” 2008-

2013.

If we see the Equity Fund number of agents are more whose have 20% to 50%

investors are invest in equity fund. That means 25 % to 50% investors aggressive

risk nature.

12 agents have such type investors. 25% to 50% those have invested balance

fund that means they are come under category of moderate risk investors.

Q11. How many clients actually invest in Mutual Funds, per 10 clients?


2 3

3 5

4 6

5 8

6 4

7 2

8 2

9 0

Grand Total 30

From the above table we can show that average 8 agents convince 5 out 10 clients

to invest in Mutual Fund that means 50 % people ready to invest in almost every

trial.


V. Management lessons The Management Lessons that I learned and inherited while working at NJ India

Invest Pvt. Ltd.

1. I got to learn this from Mr. Ravindra Pansara (Branch Manager) NJ India

Invest Pvt. Ltd. He started his life as an executive at NJ He said if you want

to achieve something big in life, don’t hesitate to start small if it is of your

interest.

2. I got to learn that we should always help others. My external guide. He

always used to help others to learn things. He always used to call me and

other interns to teach us. Even he was always ready to help others working

there. Because of this everyone used to respect him and ready to work for

him.

3. I observed in the office that those who get involved in different discussion

and sociable get much better response than those who do not. Involvements

in various activities also help us to know people around us better and help

in learning many things.

4. Sharing of knowledge is very important. If you share your knowledge and

views with other people, other will get benefit from that and you will also

learn it better when other gives their point of view. Two ways

communication process will help us to improve our knowledge and

understanding

5. I felt while working that it is always good to ask when you are in doubt

because it gives clear indication to other that what he has communicated

has not received by you correctly. Hence you should never hesitate to ask

queries.


.

6. Always try to be a good speaker. But a good speaker is not sufficient. In

order to manage properly you have to listen to the people around you. It

gives a sense of belongingness to the other person when you listen to him.

Maybe you are correct but always listen and respect the views of others.

They will always respect your views.

7. During internship I learned that those people who respect their seniors

always get respect from seniors. I have seen that many a times a senior is

wrong and a junior is right then also junior says nothing in front of senior

or tries to explain things in sophisticated manner

8. Don’t be afraid of your boss. Always be friendly with him. He will like it.

Being friendly does not mean that you should talk loudly or arrogantly to

him. It means you should not hesitate in speaking to him.

9. I felt that people who motivate others get motivated themselves. Sir used

to motivate us by giving us treat when we did a good job. This motivates

other also to do their job properly.

10. I felt in office that those who were dressed well used to give other some

kind of positive energy to others. I myself felt that when you are dressed

well it gives you a kind of confidence and energy to do your job.

11. Customer is the boss of your business. Therefore always be honest to him.

If you have made a mistake, tell him before he get to know from others so

that he always trust you. Losing one customer can lead to loss of 5 more

and gaining one customer can lead to gain of 5 more.


12. Always be polite while talking. It gives a positive sign to others that you

are capable of managing things correctly. Moreover in stress you can work

more efficiently when you stay calm.

13. Commitment toward your work is the need of the hour because when you

are committed to work, there are more chances of doing it right.

14. You cannot push a truck alone but with team yes you can. There are some

tasks which cannot be performed alone as it takes more time and is prone

to more errors. Working with others needs different qualities than working

alone. A good team player can always be a good manager.

15. Always give your 100% to whatever you do. It helps you to achieve more

in your life. Maybe there is a situation where you gave your 100% but still

not able to achieve the goal. In this case your boss will always appreciate

and motivate you because he has seen your efforts.

16. I have seen people in office who has very much knowledge but are not able

to express it or when they express other person may not be able to interpret

it well. This is because of poor communication skills. Knowledge is useful

when others can gain from it.

17. Always plan what you have to do on daily basis. It gives you better

direction to achieve your planned goals. Planning gives us the right

direction from where we have to start our work. Planning saves almost 30%

of the time in doing work.


18. Proper control is necessary in order to see that things are going in right

direction or not. If not proper measures needs to be adopted in order to

improve that.

19. Taking and giving feedback is very important. It help us to know how our

juniors are working and helps to give them suggestion or direction if

needed. Moreover taking and giving feedback helps to maintain free flow

of information through different levels of hierarchy


VI. Findings 1. Broadly Mutual Fund scheme are divided in to:( refer page no: 39)

SIP gives return between 15%- 25%

Equity which gives expected return 15%- 20%,

Debt which gives expected return 7%- 12%

Balance (Debt+ Equity (60% to 80%)) which gives expected return 8%-

15%.

Liquid fund gives return 6%-8%.

Money market Mutual Fund which gives return between Repo rate and

Reverse Repo rate.

2. Franklin India Blue-chip Fund (launched in December 1993) and Birla Sun

Life Frontline Equity Fund scheme, which have given 22% a year return

over the last five years.

3. HDFC Equity Fund (launched in Jan 01, 1995) and HDFC Top 200 Fund

(launched in Sep-1996) benchmark with S&P BSE 200and benchmark

with CNX 500.The fund delivered around 23 % return over 5 years.

4. ICICI Prudential Value Discovery Fund (launched in august 16, 2004)

benchmark with CNX Midcap which delivered 32.83% return over 5 years.

And it is closed ended scheme 1% Exit load if redemption within 365 days.

5. UTI Opportunities Fund (launched in Jul 20, 2005) benchmark with S&P

BSE 100 and it has delivered 23.07 % return over 5 years.

6. Canara Robeco Equity Diversified Fund The average equity exposure of

portfolio in last one year has been around 94.26% and 5.74% in cash and

equivalents. In the current month however it had 89.58% of assets in equity

and 10.42% in cash and equivalent segments. The scheme has a corpus of

Rs. 469.8094 crores (Aug 2007), which is not among the best in the

industry but its growth from Rs. 68.63 crores as on November 2004


definitely points towards the rising investor confidence in this scheme. In

last six months the corpus has grown over.

7. Age of agents and client base they have are correlated. For example young

agent are aggressive for service well.

8. Income from the commission of agent is depended on investment i.e. from

the commission we can find how much particular agent’s investment.

9. Form the study I found professional adviser( agents, Financial adviser) are

consider to be more reliable source of Mutual Fund information that we

can show form the responses from the agents e.g. every agent has at least

50 clients which is quite good number.

10. Financial adviser playing a key role in Mutual Fund investment.

11. From the responses from the agent. It show that investment in SIP is more.

12. 50 % to 75% investors are invested in Debt fund.

13. 20% to 50% investors are invest in equity fund.

14. 25% to 50% those have invested balance fund.

15. The total AUM( Assets under Management) rose by Rs 1.51 lakh crore or

an increase of 23 per cent during 2012-13 from Rs 6,64,792 crore in the

preceding fiscal

16. The country's 44 fund houses together had an average AUM (Asset Under

Management) of Rs 8,16,400 crore at the end of fiscal year ended March

31, 2013.

VII. Recommendation 1. The AMC (Asset Management Company) should create awareness among

the individuals about the benefits of Mutual Funds & the returns from the

Mutual Fund market.


2. This can be done by arranging at the household level or by conducing

external program at a public place to educate people about the nature,

benefits & importance of Mutual Funds.

3. As on many people are not aware about Mutual Fund & other financial

products, industry should conduct surveys to gauge the preferences of the

investors as many people do not invest their savings due to lack of

knowledge & because of high risk.

4. The prospective investors should diversify their monthly income by

preparing the Monthly Budget and they can generate savings out of their

regular income to invest in the monthly plan of Mutual Funds.

5. It is found that minimum investment in case of HSBC Equity Fund is Rs.

10,000 which is double than HDFC‟s, hence it is suggested to reduce it so

that more number of investors can invest.

6. Investors who want to gain consistent profit but in a long time duration can

invest in these companies. The net asset value of the funds under

consideration had proved to be bullish and bearish in a very short period.

But if we see the trend these schemes shows bullish nature on an average.

7. Dividend acts as a good promotion tool to investors. In all AMC taken

above only UTI equity fund has given dividend, so other AMC can go for

dividend.

8. For the long term investment it always advisable to invest in equity. If

investment for the short term purpose that debt fund would be better.

9. Financial adviser should provide need base solution to investors.

10. Financial adviser should recommendation SIP for the investment to the

investors because SIP small amount investment and it generate good return

over s long time and adviser can make good commission over a long time

that’s why it is better for both investors and adviser.


11. Financial adviser should manage portfolio according to the risk profile of

investor. Sometime adviser manage such that he make good commission

out of that. That would useful when market is good but if market falls than

investors may lose confidence e.g. generally above 60 age investors wants

fixed income securities.

VIII. Conclusions Out of all the avenues considered, it was found that most of the investor

prefers investing in Debt fund and bank FD because of the low risk

associated with them.

Future security and child’s carrier is main objective of investor while

investing in the various financial instruments. Therefore role of financial

adviser (agent) is to provide and set portfolio according to investors need,

and long term prospective.

Most of the people are investing for the period of 1-5 years, which means

that people are looking for investing in short term and medium term to get

returns.

As the age increases, the risk taking appetite decreases therefore financial

adviser (agents) can recommend to the investors to set investment objective

for the future e.g. retirement plan, educational plan.

Young age groups are found to have high risk taking appetite.


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study of mutual fund investment

Economy & Finance