Mahindra Finance 107

8/20/2019 Mahindra Finance 107

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SUMMER TRAINING REPORT

STUDY OF CHANGING CONSUMERS’ PERCEPTION

ABOUT VARIOUS INVESTMENT OPTION

Project submitted for the partial fulfillment of

MASTER OF BUSINESS ADMINISTRATION (FINANCE)

IEC COLLEGE OF ENGINNERING AND TECHNOLOGY

Greater Noida

SUBMITTED TO: - SUBMITTED BY:-Dr. S.N Sing !re"#andra $a

%HOD M.B.A& Ro'' No.- ()*+*,***, MBA nd r *()-(/

Acknowlede!en"

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The project is the synergy of the efforts of a number of people. I would like to thank all

for providing the support and the guidance during the course of the project.

I thank IEC college of Engineering Technology giving me the opportunity to

undergo summer training with !"#I$%&" 'I$"$CEE.

I would like to e(tend my special thanks to %r. "jay )umar company guide for

providing me the direction during the course of my project.

*astly I would like to thank !"#I$%&" 'I$"$CE for giving me the opportunity to

be a part of the organi+ation.

!re"#andra $a &oll $o, 1-/00

DEC#ARATION


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I P$e!c%&nd$& '%& student of IEC college of engineering technology 2atch31-4156 declare that every part of the Project &eport 7orking Capital !anagementthat I have submitted is original.

I was in regular contact with the nominated guide and contacted 18 times fordiscussing the project.

%ate of Project submission,

9ignature of the student

9ignature of the 'aculty guide

$ame

TAB#E OF CONTENTS

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T"2*E ;' C;$TE$T9

"C)$;7*E%TI?E 9>!!"&@

C#"PTE& 1, I $T&;%>CTI;$

1.1 Company Profile

1. Project 2rief A;bjective

1.: ?alue "ddition

1.- *imitations

1.8 9teps Taken to overcome the limitations

CHAPTER CONCEPTUA# FRAM*OR+

.1 !utual 'unds

, !-"-&l F-nd .nd-/"$0

.: Bourney 9o 'ar

.- Types of !utual 'und8

.8 2asic Terms >sed in !utual 'und

,1 2&$.o-/ 3l&n/ o44e$ed 50 !-"-&l 4-nd

.0 9ystematic Investment Plan

,6 &d2&n"&e/ o4 !-"-&l 4-nd

,7 %ow we /"&nd "od&0

.1 &isks Involved with !utual 'unds

,88 S*OT ANA#YSIS OF MUTUA# FUND

CHAPTER 9#."$&"-$e Re2.ew

:.1 &esearch %esign

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:. 9ource of %ata

:.: Period of 9tudy

:.- 9ampling

:.8 Tools for %ata "nalysis

CHAPTER :: RESEARCH METHODO#OGY

CHAPTER ; DATA ANA#YSIS AND INTERPRETATION

CHAPTER 1 RECOMMODATIONS AND CONC#USIONS

ANNE


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7hen I embarked this project it appeared to me an onerous work. 9lowly as I progressed I

did reali+e that I was not alone after allDD There were friends and well wishers who with their

magnanimous and generous help and support made it a relative easier affair.

I wish to e(press my gratitude to all that concerned persons who have e(tended their kind

help guidance and suggestions without which it could not have been possible for me to complete this

project report.

I am deeply indebted to my guide M$, Alok S&%- 3'inance !anager6 for not only his

valuable and enlightened guidance but also for the freedom he rendered to me during this project

work. I would also like to thanks M.// C%%&5. G-3"& for helping me to carry my project smoothly.

!y heart goes out to my parents who bear with all types of troubles I caused them

with smile during the entire study period and beyond.

P$e!c%&nd$& '%&

E


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%uring my training period under the guidance of my !ahindra 'inance guide I have

tried to understand the working environment of the company along with working of an "!C and

look into its operations. Through working at the branch office for the past si( weeks I have been

able to observe certain factors like customer footfall in the branch their relation with branch

members and kind of support given to them which have an impact on customer perception and my

understanding regarding the same.

'urther more working on my project simultaneously Project aims at !arket study of

behavioral approach of consumer toward mutual fund industry. !arket study involves the complete

study products like M-"-&l F-nd> SIP> Ul.3’/ &nd Gold /c%e!e/ etc. This will be done through

training given to me by !ahindra 'inance reference material provided by company maga+ines

books newspapers and web sites. I reached to the various customers with the help of a

uestionnaire and even some contacts are provided through companyFs database. There responses

are analy+ed with the help of !icrosoft E(cel and Chi 9uare test is also performed and the resultsare matched with $ull #ypothesis

7orking as the marketer I am dealing with !utual 'und of various AMC’/ l.ke HSBC>

DSP MERRI# #YNCH> MAHINDRA FINANCE> RE#IANCE> UTI> FRAN+#IN

TEMP#ETON> FIDE#ITY> ICICI> HDFC> BIR#A SUN #IFE e"c. Complete understanding of

their funds dealt during training. In studying the

Consumer behavior my prime focus will be on !utual 'und and sale of mutual fund.

The result of Chi suare test comes out to be in supportive of $ull #ypothesis that is 4

#ypothesis # there is significant difference in the perception of the Customers about the );T")

schemes and the way it is projected by the Company Itself.

'urther more the recommendations from investorFs point of view and for the company are

suggested and these are well accepted by company guide.

CHAPTER 8

INTRODUCTION

0


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%evelopment from the %epartment of 9cience and Industry of the


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The Company was incorporated on 1st Banuary 1//1 as !a(i !otors 'inancial 9ervices

*imited and received Certificate of Commencement of 2usiness on 1/th 'ebruary 1//1. The name

has been

changed to !ahindra !ahindra 'inancial 9ervices *imited and 'resh Certificate of Incorporation

was received on :rd $ovember 1//. The &egistration Certificate from &eserve 2ank of India 3&2I6

was received on -th 9eptember 1//H in terms of 9ection -8 " of the &eserve 2ank of India "ct 1/:-.

It must be distinctly understood however that the issuing of Certificate by &2I A Central


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!!'9* is a focused automotive and euipment #ire Purchase and *easing Company. It

finances dealers of !! their customers and small businesses by e(tending short term finance as

well as *ease and #ire Purchase 'inance. 7ith the onset of boom in the automotive business and

general growth in the economy as a seuel to liberali+ed government policies !!'9* can play a

much bigger role in meeting the reuirement of small businesses small transport companies and

agriculturists

7ith effect from 0th "pril - !ahindra Insurance 2rokers *td. 3previously known as !ahindra

"llied Investments *td.6 #as become subsidy of the company carrying on the business of direct

Insurance broking.

M-"-&l F-nd D./"$.5-".on

&ecently it has received the necessary permission from &eserve 2ank of India 3&2I6 to start

the distribution of !utual 'und products through its network. #itherto the company was only participating in the liability reuirements of its customers and with mutual fund distribution businessM

it can also participate in their asset allocation.

7hen it comes to investing everyone has uniue needs based on their own objective and risk profile.

Even though many investment avenues such as fi(ed deposit bonds etc. e(ists euities typically

outperform these investments over a longer period of time. 7e are of the opinion that systematic

investment in euity will allow you to create 7ealth.

#ence only through proper allocation of your portfolio you can get the ma(imum return with

moderate risk. Investing in euity is not as straight forward as investing in bonds or bank deposits. It

reuires e(pertise and time. ;ur Investment "dvisory services will help you to invest your money in

euity through different !utual 'und 9chemes. 'or instance there are some products of !utual 'und

which allows you to manage your cash flow by providing liuidity 3liuid 'unds6 as well give you ta(

free return.

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8, P$oec" B$.e4o5ec".2e/

The project involves the !arket study of Perception and preference of consumer toward

!utual 'und.

The main objectives of the study will involve the following,

1. To find out the changes in consumersF perception regarding various available Investment

;ptions .

. To understand the various Investment ;ption e(isting in the market

:. To know the awareness level of consumers towards various Investment ;ption.

-. To know the reason of buying mutual funds.

Investment decisions of the customers are affected by their perception regarding the product.

This project has been helpful in understanding how a customer perceives a product how

different factors affect his behavior and purchase decisions.

%irect contact with customers 3during training period6 belonging to different age group

income group background etc has been useful in understanding customerAinvestor needs. The

study has also helped in identifying the factors that have a positive impact on investor which

can influence him to buy the product and the factors that have a negative impact on him and

subseuently prevent him from buying the product

"part from the !arket 9tudy this project will also deal with understanding the operating

environment of the !ahindra 'inance as how they deal with the customers and in what way other

activities are carried out.

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8,9 V&l-e Add.".on

♦ Insight into Customer Perception, The project will help !ahindra 'inance in identifying the key

factors influencing investor decisions.

♦ !ahindra 'inance might introduce new product catering to a sub segment in the market based

on competitor product success.

♦ "dditional 9ales, In the whole learning process there will be additional sale of !ahindra

'inance investment products thus contributing to their top line as well as bottom line.

8,: #.!."&".on/

There are few challenges associated with achieving the desired objectives of the project. These

challenges are due to some limitations. 9ome of the associated challenges and limitations are,

1. *ack of access to data due to constrains of data sharing. "s per the company policy it is not

allowed to share their data with non4authori+ed people. I will be collecting all the necessary

information on my own which might not be up to the level of information given by

!ahindra data.

. *ack of co4operation from the employees, employees will not be able to give full

cooperation because of their work schedules. 9ource of getting the e(pert opinion will be

lacking.

:. Time Constraint, "s there are lots of investment product available performance evaluation

of all these in such a short span is not possible.

-. 9elective 9tudy, Consumer Perception is a very vast topic and analysis of each component

of Consumer Perception is not possible so we will have to base our Inferences on selected

components of Consumer Perception

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8,; S"e3/ T&ken "o o2e$co!e "%e l.!."&".on/

1. Collected the dataAinformation vetted by Project guide at !ahindra and other publicly

available sources of data.

. Tried to seek assistance on personal level and refer to industry sources for e(pert

opinions.

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CHAPTER

CONCEPTUA# FRAM*OR+

,8

M-"-&l F-nd/

CONCEPT

" !utual 'und is a trust that pools the savings of a number of investors who share a

common financial goal. The money thus collected is then invested in capital market

instruments such as shares debentures and other securities. The income earned through

these investments and the capital appreciations reali+ed are shared by its unit holders in

proportion to the number of units owned by them. Thus a !utual 'und is the most suitable

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

professionally managed basket of securities at a relatively low cost.

" mutual fund is a financial intermediary that pools the savings of investors for

collective investment in a diversified portfolio of securities. " fund is NmutualK as all of its

returns minus its e(penses are shared by fund investor.

The 9ecurities and E(change 2oard of India 3mutual fund6 regulations 1//5 defines

a mutual fund as a fund established in the form of a trust to raise money through the sale of

units to the public or a section of public under one or more schemes for investing in

securities including money market instruments.

"ccording to the above definition a mutual fund in India can raise resources through the

sale of units to the public. It can be setup in a form of trust under the Indian Trust "ct. The

definition has been further e(tended by allowing mutual fund to diversify their activities in

the following areas,

• Portfolio management service

• !anagement of offshore funds

• Providing advice to offshore funds

• !anagement of pension or provident funds.

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• !anagement of venture capital funds.

• !anagement of money market funds.

• !anagement of real estate funds.

" mutual fund serves as a link between the investor and the securities market by mobili+ing

savings from the investors and investing them in the securities market to generate returns.

Thus a mutual fund is a keen to portfolio management services. "lthough both are

conceptually same they are different from each other. Portfolio management services are

offered to high net worth individualsM taking into account their risk profile their investments

are managed separately. In the case of mutual funds savings of small investors are pooled

under a scheme and the returns are distributed in the same proportion in which the

investments are made by the investorsAunit4holders.

!utual fund is a collective savings schemes. !utual funds play an important role in

mobili+ing the savings of small investors and channel sing same for productive ventures in

the Indian economy.

" mutual fund is a corporation 3trust6 that pools the savings which are then invested in

money market debt market and capital market instruments such as shares debentures and

other securities. Thus the !' serves as a link between the public and the capital markets so

as to mobili+e savings from the investors and invest them in the capital markets to generate

returns.

The following are some of the more popular definitions of a !utual 'und.

" !utual 'und is an investment tool that allows small investors access to

well4diversified portfolio of euities bonds and other securities. Each shareholder

participates in the gain or loss of the fund. >nits are issued and can be redeemed as needed.

The funds $et "sset ?alue 3$"?6 is determined each day.

!utual 'unds are financial intermediaries. They are companies set up to receive your money and then having received it make investments with the money ?ia an "!C. It is an

ideal tool for people who want to invest but dont want to be bothered with deciphering the

numbers and deciding whether the stock is a good buy or not. " mutual fund manager

proceeds to buy a number of stocks from various markets and industries. %epending on the

amount you invest you own part of the overall fund.

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The beauty of mutual funds is that anyone with an ingestible surplus of a few hundred

rupees can invest and reap returns as high as those provided by the euity markets or have a

steady and comparatively secure investment as offered by debt instruments.

M-"-&l F-nd 3$oce//@

The flow chart below describes broadly the working of a mutual fund,

F.@8 wo$k.n o4 !-"-&l 4-nd

M-"-&l F-nd/ O$&n.&".on

Three key players namely sponsor mutual fund trust and asset management company 3"!C6 are

involved in setting up a mutual fund. They are assisted by other independent administrative entitieslike banks registrars transfer agents and custodians 3depositoryFs participants6

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The diagram below illustrates the organi+ational set up of a mutual fund,

F.@ !-"-&l 4-nd o$&n.&".on

FUND SPONSOR

7hat a promoter is to a company a sponsor is to a mutual fund. The sponsor initiates the idea to set

up a mutual fund. It could be a financial services company a bank or a financial institution. It could

be Indian or foreign. It could do it alone or through a joint venture. In order to run a mutual fund in

India the sponsor has to obtain a license from 9E2I.

it has to satisfy certain conditions such as on capital and profits track record 3at least five years in

financial services6 default4free dealings and a general reputation for fairness. The sponsor must have

been profit making in at least : years of the above 8 years.

The 9ponsor appoints the Trustees Custodian and the "!C with the prior approval of 9E2I and in

accordance with 9E2I &egulations.

*ike the company promoter the sponsor takes big4picture decisions related to the mutual fund

leaving money management and other such nitty4gritty to the other constituents whom it appoints.

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The sponsor should inspire confidence in you as a money manager and preferably be profitable.

'inancial muscle so long as it is complemented by good fund management helps as money is then

not an impediment for the mutual fund4 it can hire the best talent invest in technology and

continuously offer high service standards to the investors.

In the days of assured return schemes sponsors also had to fulfill return promises made to the unit

holders. This sometimes meant meeting shortfalls from their own pockets as the government did for

>TI. $ow that assured return schemes are passed such bailouts wonFt be reuired. "ll things

considered choose sponsors who are good money managers who have a reputation for fair business

practices and who have deep pockets

TRUST

The !utual 'und is constituted as a Trust in accordance with the provisions of the Indian Trusts "ct

1HH by the 9ponsor. The trust deed is registered under the Indian &egistration "ct 1/H. The Trust

appoints the Trustees who are responsible to the investors of the fund.

TRUSTEES

Trustees are like internal regulators in a mutual fund and their job is to protect the interests of the

unit holders. Trustees are appointed by the sponsors and can be either individuals or corporate

bodies. In order to ensure they are impartial and fair 9E2I rules mandate that at least two4thirds of

the trustees be independent i.e. not have any association with the sponsor.

Trustees appoint the "!C which subseuently seeks their approval for the work it does and reports

periodically to them on how the business being run. Trustees float and market schemes and secure

necessary approvals. They check if the "!Cs investments are within defined limits and whether the

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fundFs assets are protected. Trustees can be held accountable for financial irregularities in the

mutual fund.

ASSET MANAGEMENT COMPANY (AMC)

"n "!C is the legal entity formed by the sponsor under the Companies "ct and registered with the

9ecurities and E(change 2oard of India 39E2I6 to manage investors funds collected through different

schemes to run a mutual fund. The "!C is usually a private limited company in which the sponsors

and their associates or joint venture partners are the shareholders. The trustees sign an investment

agreement with the "!C which spells out the functions of the "!C. It is the "!C that employs

fund managers and analysts and other personnel. It is the "!C that handles all operational matters of

a mutual fund L from launching schemes to managing them to interacting with investors.

"!C charges a fee for the services it renders to the !' trust. Thus the "!C acts as the investment

manager of the trust under the broad supervision and direction of the trustees

Ne" &//e" 2&l-e

$"? means $et "sset ?alue. This is the main performance indicator of a fund especially when

viewed in terms of its appreciation over time. The $"? breaks down the performance of a scheme in

terms of the market value of every outstanding unit of the scheme. " funds $"? is calculated as total

assets minus all e(penses and divided by the number of its total outstanding units

Un."

" unit in a mutual fund scheme means one share in the assets of a particular scheme. 9o a person

holding units in a scheme is referred to as a unit holder.


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CUSTODIAN

" custodian handles the investment back office of a mutual fund. Its responsibilities include receipt

and delivery of securities collection of income and distribution of dividends and segregation of

assets between the schemes. It also track corporate actions like bonus issues right offers offer for

sale buy back and open offers for acuisition. The sponsor of a mutual fund cannot act as a custodian

to the fund. This condition formulated in the interest of investors ensures that the assets of a mutual

fund are not in the hands of its sponsor. 'or e(ample %eutsche 2ank is a custodian but it cannot

service %eutsche !utual 'und its mutual fund arm.

TRANSFER AGENTS

&egistrars also known as the transfer agents are responsible for the investor servicing functions.

This includes issuing and redeeming units sending fact sheets and annual reports. 9ome fund

houses handle such functions in4house. ;thers outsource it to the &egistrarsM )arvy and C"!9 are

the more popular ones. It doesnFt really matter which model 9ome of the investor L related services

are,4

• Processing investor applications.

• &ecording details of the investors.

• 9ending information to the investors.

• Processing dividend payout.

• Incorporating changes in the investor information.

• )eeping investor information up to date.

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,M-"-&l F-nd Ind-/"$0

The mutual fund industry is a lot like the film star of the finance business. Though it is

perhaps the smallest segment of the industry it is also the most glamorous L in that it is a young

industry where there are changes in the rules of the game everyday and there are constant shifts and

upheavals. The mutual fund is structured around a fairly simple concept the mitigation of risk

through the spreading of investments across multiple entities which is achieved by the pooling of a

number of small investments into a large bucket. @et it has been the subject of perhaps the most

elaborate and prolonged regulatory effort in the history of the country.

9tarting out as an industry with a single player the >TI in 1/5: the mutual fund industry in

India has come a long way since then. Today close to : players offering over -5 schemes dot the

industry landscape. The industry has gained enormously in si+e as reflected in its assets under

management which now stand at a whopping &s.108/1H cr. as on Buly :1 8 from &s.1

crore in early .

The journey of the industry has been nothing less than spectacular particularly in the last 8

years or so. " host of factors has contributed to the phenomenal growth of the industry. 'irst and

foremost as a result of the increased competition industry players have focused on product

innovation to drive growth. This has not only helped the industry players to tap the latent needs of the

investors but also enabled them to e(pand markets as more and more investors including retail

investors have begun to look at mutual funds as a suitable investment avenue. 9econd the need for

greater market penetration has forced industry players to devise innovative channels of delivery to

gain and strengthen their market share. Today we see new channels and models of distribution

emerging as the race among the fund houses heats up to enhance reach to potential investors. Third a

slew of ta( incentives which include rationali+ing of capital gains ta( aiming to boost euity


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investing coupled with a benign interest rate regime have helped mutual funds gain popularity with

investors. 'inally a slew of regulatory measures taken by 9E2I have played a crucial role in instilling

confidence among investors especially

retail investors. $o doubt these factors

have attributed significantly to the

growth of the mutual fund industry in the

country particularly in recent times.

'urther the emergence of India

as a major investment destination has

done a world of good to the mutual fund

industry in the country as it is witnessing

entry of many big names in the global investment management business. The entry of major global

players like !organ 9tanley Principal 9unlife and 'idelity while ?anguard is mulling over its India

debut augurs well for the industry as not only these global investment management firms bring with

them the e(pertise gained internationally but also bring the best international practices in terms of

performances and investor services which will benefit the industry and will go a long way in helping

it catch up with its counter parts in developed markets like the >9 and the >).

" host of things suggests that the industry is all set to enter a period of high growth. " robust

economy fledgling stock market increasing awareness and acceptance of mutual funds among

investors strong domestic currency and healthy corporate performances are among some of the

major factors which suggest that the industryFs future is bright. #owever to gain si+e and catch up

with developed markets like the >9 the industry has to remove certain obstacles which pose

significant challenges.

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,9 'OURNEY SO FAR

The mutual fund industry in India started in 1/5: with the formation of >nit Trust of India at

the initiative of the TI was de4linked from the &2I and the Industrial %evelopment

2ank of India 3I%2I6 took over the regulatory and administrative control in place of &2I. The first

scheme launched by >TI was >nit 9cheme 1/5-. "t the end of 1/HH >TI had &s.50crores of

assets under management.

PHASE 876 "o 8779 (En"$0 o4 P-5l.c Sec"o$ F-nd/)

1/H0 marked the entry of non4 >TI public sector mutual funds set up by public sector banks

and *ife Insurance Corporation of India 3*IC6 and


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which the first !utual 'und &egulations came into being under which all mutual funds e(cept >TI

were to be registered and governed. The erstwhile )othari Pioneer 3now merged with 'ranklin

Templeton6 was the first private sector mutual fund registered in Buly 1//:. The 1//: 9E2I 3!utual

'und6 &egulations were substituted by a more comprehensive and revised !utual 'und &egulations

in 1//5. The industry now functions under the 9E2I 3!utual 'und6 &egulations 1//5. 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 acuisitions. "s at the end of Banuary :

there were :: mutual funds with total assets of &s.11H8crores. The >nit Trust of India with

&s.--8-1crores of assets under management was way ahead of other mutual funds.

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PHASE : S.nce Fe5$-&$0 9

In 'ebruary : following the repeal of the >nit Trust of India "ct 1/5: >TI was bifurcated

into two separate entities. ;ne is the 9pecified >ndertaking of the >nit Trust of India with assets

under management of &s./ H:8crores as at the end of Banuary : representing broadly the assets

of >9 5- scheme assured return and certain other schemes. The 9pecified >ndertaking of >nit Trust

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


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8, ;pen4Ended 9chemes.

, Close4Ended 9chemes

Acco$d.n "o Po$"4ol.o

8, Income funds

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8, *oan 'unds

, $on4*oan 'unds

A, ACCORDING TO O*NERSHIP

"ccording to ownership mutual funds in India may be classified as Public 9ector !utual 'unds and

Private 9ector !utual 'unds.

P>2*IC 9ECT;& !>T>"* '>$%9

>TI has been functioning in the arena of !utual4'und42usiness in India since 1/5:45-.

#owever it was only after :years in 1/H0 that second mutual fund was established in India by the

9tate 2ank of India. "lthough >TI was functioning successfully it was found inadeuate to meet the

reuirements of small and medium household sectors. Thus >TIFs monopoly in !utual 'und

2usiness was curtailed by the central


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PRIVATE SECTOR MUTUA# FUNDS

9eeing the success and growth of !utual 'unds in the Indian Capital !arket the


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on the stock e(changes where they are listed. >nlike open4ended schemes the unit capital in closed4

ended schemes usually remains unchanged. "fter an initial closed period the scheme may offer direct

repurchase facility to the investors. Closed4ended schemes are usually more illiuid as compared to

open4ended schemes and hence trade at a discount to the $"?. This discount tends towards the $"?

closer to the maturity date of the scheme.

C, ACCORDING TO PORTFO#IO

!utual funds can also be classified according to portfolio or the objectives of the fund. 9ome of

these funds are Income funds


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INCOME FUNDS

These funds aim at providing ma(imum current return to the investors. The investments are

made in stocks yielding higher returns and capital appreciation is of small importance. 9uch funds

distribute the income earned by them periodically amongst the investors.

$%9

2alanced funds spend both on common stock and preferred stock. These funds ensure both

appreciations in stock as well as regular return in the shape of interest and dividend. The investors

have advantage of regular income and appreciation in value of securities. These funds are also known

as OConservative 'undsF or OIncome and $%9

These funds mainly invest in shares of the companies. The investments may vary from Oblue

chipF companies to newly established companies. They undertake risk associated with investment in

euity shares of companies. 9tock funds may have further sub4divisions such as income funds and

growth funds. " special type of euity fund is also known as Oinde( fundF or Onever beat market fundF.

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2;$% '>$%9

These funds employ their resources in bonds. These investments ensure fi(ed and regular

income. 9ome companies offer non4convertible bonds along with the shares. The shareholder is saved

of the botheration of buying bonds compulsorily while the bond fund will pay less than the face value

of the bond thus saving some money.

9PECI"*I9E% '>$%9

These funds invest in a particular type of securities. The funds may speciali+e in securities of

companies dealing in a particular product firms in a particular industry or of certain income

producing securities. "ny investor wanting to invest in a particular security will prefer a fund dealing

in such securities.

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T"="TI;$ '>$%9

Investors 3individuals and #indu >ndivided 'amilies 3N#>'sK66 are being encouraged to

invest in euity markets through Euity *inked 9avings 9cheme 3NE*99K6 by offering them a ta(

rebate. >nits purchased cannot be assigned A transferredA pledged A redeemed A switched L out until

completion of : years from the date of allotment of the respective >nits. The 9cheme is subject to

9ecurities E(change 2oard of India 3!utual 'unds6 &egulations 1//5 and the notifications issued

by the !inistry of 'inance 3%epartment of Economic "ffairs6 T>"* '>$%9

These schemes invest in short term instruments such as commercial paper 3NCPK6 certificates of

deposit 3NC%K6 treasury bills 3NT42illK6 and overnight money 3NCallK6. The schemes are the least

volatile of all the types of schemes because of their investments in money market instrument with

short4term maturities. These schemes have become popular with institutional investors and high net

worth individuals having short4term surplus funds.

%. CC;&%I$< T; *;C"TI;$

!utual fund can also be classified on the basis of location from where they mobili+e funds as

%omestic 'unds and ;ff4shore 'unds.

%;!E9TIC '>$%9

::


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These are the funds which mobili+e savings of people within the country where investments

are made.

';&EIT>"* '>$%9

In addition to the above mentioned funds there can be some other types of mutual funds also

such as O*;"$ '>$%9F and O$;$4*;"$ '>$%9F based upon the e(penses or fees to be chargedM

O#>2 "$% 9P;)E '>$%9F which are basically fund of funds etc.

,; BASIC TERMS USED IN MUTUA# FUND

PRICE AND NET ASSET VA#UE (NAV)

Two important prices for shares in a closed4end fund,

!arket price 4 The price at which the shares tradeM determined by supply and demand. $et "sset ?alue 3$"?6

$"? R 3?alue of Total "ssets 4 Total *iabilities6 A 9hares ;utstanding

Though some funds sell above their $"? 3premium6 most CE's trade below 3discount6 their net

asset value often as much as 18Q 4 Q or more.

PremiumA%iscount R 3!arket Price 4 $"?6 A $"?

E(ample, $"? R G1 per shareM market price per share R GH.

%iscount R 3GH 4 G16 A G1

R 4 G A G1 R 4 Q

The premium or discount isnFt constant but usually fluctuates with market conditions. " fund

trading at a discount may rise to a steep premium or vice versa as investorsF perceptions of the

market changes.

:-


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The majority of CE's are bond fundsM ne(t in importance to world euity funds. CE's are

most useful for buying assets that are infreuently traded or hard to price. Thus very few CE's

speciali+e in >.9. euities.


36/92

,1 VARIOUS P#ANS OFFERED BY MUTUA# FUNDS

!utual 'unds in order to cater to a range of investor needs have various investment plans.

9ome of the important investment plans include,

GRO*TH P#AN

%ividend is not paid4out under a


37/92

, SYSTEMATIC INVESTMENT P#AN

T%e 5$e&d &nd 5-""e$ o4 "%e M-"-&l F-nd/ .nd-/"$0

2uy *ow and sell high just four words sum up a winning strategy for the stock markets I ndian

!arket is a synonym for volatility and dynamism. $ational 9tock E(change is the most liuid

e(change in the world. Predicting Indian !arket is the most difficult task almost an impossible one.

The inability to time the market on a regular basis can leave an investor high and dry. #owever

ironically the time in the market has historically shown more consistent success than timing the

market.

Though great returns from the market may not always be possible stable and consistent returns

are. "nd one of the best ways to get this return in this market of ours is the 9ystematic Investment

Plan 39IP6 offered by the mutual funds. 9IP is a powerful tool with a strategy of not only preserving

capital but also translating into substantial creation of wealth in the long run.

>nder this plan Investors invests a specific amount for a continuous period at regular intervals.

2y doing this the investor gets the advantage of rupee cost averaging which means that by investing

the same amount at regular intervals the average cost per unit remains lower than the average market

price irrespective of how the market is 4 rising falling or fluctuating i.e. with every fluctuation in the

market the units are purchased systematically thus resulting in averaging the purchase price.

7hereas this is not true for a one4time investment. This is the reason why a 9IP investor gets

phenomenal rate of return compared to a one4time investor.

Fe&"-$e/ o4 & /0/"e!&".c .n2e/"!en" 3l&n

1. To get a disciplined investment

. To create valueAwealth.

:. To avoid short4term fluctuations in the market.

-. "void risk of timing the market.

:0


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How "o /"&$" &n SIP

9tart with an initial investment

Invest a fi(ed sum every month

!inimum investment L &s.1 per month

Post4dated cheuesAstanding instructions to the bank

Investments happen on the preset date in the specified scheme every month

:H


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Ad2&n"&e/ o4 S0/"e!&".c In2e/"!en" Pl&n

♦ "n 9IP reduces these risks by spreading the investments over a longer period of time at various

levels of the market.

♦ "n 9IP reduces the average cost of investment in fluctuating markets

9IP gives the advantage by allowing one to buy fewer units when the market is up and more units

when the market moves down thus an investor buys at an average price.

,6 ADVANTAGES OF MUTUA# FUNDS

There are numerous benefits of investing in mutual funds and one of the key reasons for its

phenomenal success in the developed markets like >9 and >) is the range of benefits they offer

which are unmatched by most other investment avenues. 7e have e(plained the key benefits in this

section. The benefits have been broadly split into universal benefits applicable to all schemes and

benefits applicable specifically to open4ended schemes.

:/


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UNIVERSA# BENEFITS

-


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BENEFITS OF OPEN ENDED SCHEMES

-1


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DISADVANTAGES OF MUTUA# FUND

,7 HO* *E STAND TODAY

The performance of mutual funds in India from the day the concept of mutual fund took birth

in India. The year was 1/5:. >nit Trust of India invited investors or rather to those who believed in

savings to park their money in >TI !utual 'und.

'or : years it goaled without a single second player. Though the 1/HH4year saw some new

mutual fund companies but >TI remained in a monopoly position.

The performance of mutual funds in India in the initial phase was not even closer to satisfactory level.

People rarely understood and of course investing was out of uestion. 2ut yes some - million

shareholders were accustomed with guaranteed high returns by the beginning of liberali+ation of the

industry in 1//. This good record of >TI became marketing tool for new entrants. The e(pectations

of investors touched the sky in profitability factor. #owever people were miles away from the

preparedness of risks factor after the liberali+ation.

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The "ssets >nder !anagement of >TI was &s. 50bn. by the end of 1/H0. *et me concentrate

about the performance of mutual funds in India through figures. 'rom &s. 50bn. the "ssets under

!anagement rose to &s. -0 bn. in !arch 1//: and the figure had a three times higher performance

by "pril -. It rose as high as &s. 18-bn.

The net asset value 3$"?6 of mutual funds in India declined when stock prices started falling

in the year 1//. Those days the market regulations did not allow portfolio shifts into alternative

investments. There was rather no choice apart from holding the cash or to further continue investing

in shares. ;ne more thing to be noted since only closed4end funds were floated in the market the

investors disinvested by selling at a loss in the secondary market.

The performance of mutual funds in India suffered ualitatively. The 1// stock market

scandal the losses by disinvestments and of course the lack of transparent rules in the whereabouts

rocked confidence among the investors. Partly owing to a relatively weak stock market performance

mutual funds have not yet recovered with funds trading at an average discount of 1 percent of

their net asset value.

The supervisory authority adopted a set of measures to create a transparent and competitive

environment in mutual funds. 9ome of them were like rela(ing investment restrictions into the

market

introduction of open4ended funds and paving the gateway for mutual funds to launch pension

schemes.

The measure was taken to make mutual funds the key instrument for long4term saving. The more the

variety offered the uantitative would be investors.

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"t last to mention as long as mutual fund companies are performing with lower risks and

higher profitability within a short span of time more and more people will be inclined to invest until

and unless they are fully educated with the dos and donFts of mutual funds.

T%e $&3% .nd.c&"e/ "%e $ow"% o4 &//e"/ o2e$ "%e 0e&$/

$ote, Erstwhile >TI was bifurcated into >TI !utual 'und and the 9pecified >ndertaking of

the >nit Trust of India effective from 'ebruary :. The "ssets under management of the 9pecified

>ndertaking of the >nit Trust of India has therefore been e(cluded from the total assets of the

industry as a whole from 'ebruary : onwards.

ROAD TO FUTURE

2y %ecember - Indian mutual fund industry reached &s 188:0 crores. It is estimated that by

1 !arch4end the total assets of all scheduled commercial banks should be &s -/ crores.

The annual composite rate of growth is e(pected 1:.-Q during the rest of the decade. In the last 8

years we have seen annual growth rate of /Q. "ccording to the current growth rate by year 1

mutual fund assets will be double.

--


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9ome facts for the growth of mutual funds in India

1Q growth in the last 5 years.

$umbers of foreign "!CFs are in the ueue to enter the Indian markets like 'idelity

Investments >9 based with over >9G1trillion assets under management worldwide.

;ur saving rate is over :Q highest in the world. ;nly channel +ing these savings in mutual

funds sector is reuired.

7e have appro(imately / mutual funds which are much less than >9 having more than H.

There is a big scope for e(pansion.

O2F and OCF class cities are growing rapidly. Today most of the mutual funds are concentrating

on the O"F class cities. 9oon they will find scope in the growing cities.

!utual fund can penetrate rural like the Indian insurance industry with simple and limited

products.

9E2I allowing the !'Fs to launch commodity mutual funds.

Emphasis on better corporate governance.

Trying to curb the late trading practices.

Introduction of 'inancial Planners who can provide need based advice.

-8


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S&le/ d-$.n "%e !on"% o4 M&$c%> 89

"ll 9chemes "mount in &s. Crores

;pen End Close End Total

$o.of

9chemes"mount

$o.of

9chemes"mount

$o.of

9chemes"mount

2alanced :- -5 4 :5 -5

E*99 5 1/ 11 1:H :0 1150

! having &s08: crores of ">!

with 1.50Q of market share. &eliance !utual 'und slipped to third position with total asset under

management at &s

5- crore having 1.8Q of market share. >TI retained its top position with total assets under

management at :1H crore with 11.5/Q of market share as shown in the fig below.

M-"-&l F-nd Ind-/"$0 -3d&"e 89

!utual fund assets jumped 0Q in "pril. 7ith the market staging a gradual recovery the

mutual fund industry recouped as well with its assets growing by &s :58H- crore in the past month.

The combined assets under management of all the fund houses soared to &s 858--1.: crore at the

end of "pril as against &s 8HH80.0 crore in the previous month according to latest data available

on the "ssociation of !utual 'unds in India 3"!'I6.

-5


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E(perts believe the growth in the mutual fund assets is due to attractive valuations of the stock after

the correction in !arch.

&eliance !utual fund which had also seen its assets fall in the previous month retained its position

as the top fund house in the country.

#owever at the end of "pril there was a jump of &s 8--H.-5 crore in the ">! of &eliance !'

which stood at &s /5:H5.- crore compared to previous monthFs &s //:0./- crore.

ICICI Prudential follows at the second position with its assets growing by &s 1:H5 crore to &s

880H.8 crore in "pril.

"ssets of state4run >TI !' increased to &s 88-/.- crore in "pril and it continues to be at the third

place amongst the fund houses.

"mong the top five mutual funds #%'C!' and 'ranklin TempletonFs ">!s also increased to &s

8100.H1 crore and &s H 5:1.5: crore respectively.

#owever &eliance !' which was aiming to become the first fund house in the country to cross the

&s one trillion mark in assets under management fell short by less than &s - crore. Prior to the

release of ">! figures media reports had said &eliance !' had achieved the &s 1 trillion mark in

">! in the last month.

,8 RIS+ INVO#VED *ITH VARIOUS INVESTMENT OPTIONS

R./k/ In2ol2ed w."% M-"-&l F-nd/

!utual 'unds are subjected to various risks and there is no assurance that a scheme objective

will be achieved. These risks should be properly understood by investors so that they can understand

how much risky their investment avenue is. Euity and fi(ed income bearing securities have different

risks associated with them. ?arious risks associated with mutual funds can be described as below.

-0

http://economictimes.indiatimes.com/Personal_Finance/Mutual_Funds/Mutual_fund_assets_jump_7_in_April/articleshow/3012228.cmshttp://economictimes.indiatimes.com/Personal_Finance/Mutual_Funds/Mutual_fund_assets_jump_7_in_April/articleshow/3012228.cms


48/92

R./k/ &//oc.&"ed w."% F.ed Inco!e Be&$.n Sec-$.".e/

8, In"e$e/" R&"e R./k

"s with all the securities changes in interest rates may affect the schemes $et "sset ?alue 3$"?6 as

the prices of the securities generally increase as interest rates decline and generally decrease as

interest rates raise. Prices of long4term securities generally fluctuate more in response to interest rates

changes than short term securities do. Indian %ebt markets can be volatile leading to the possibility of

price movements up or down in the fi(ed income securities and thereby to the possible movements in

the $"?.

, #.J-.d."0 O$ M&$ke"&5le R./k

This refers to the ease with which a security can be sold at near to its valuation yield to maturity. The

primary measure of liuidity risk is the spread between the bid price and the offer price uoted by the

dealer. *iuidity risk is inherent to the Indian %ebt market.

9, C$ed." R./k

Credit risk or default risk refers to the risk that an issuer of fi(ed income security may default 3i.e.

will be unable to make timely principal and interest payments on the security6. 2ecause of this risk

corporate debentures are sold at a yield above those offered on


49/92

The $"? of the scheme investing in euity will fluctuate as the daily prices of the individual

securities in which they invest fluctuate and the units when redeemed may be worth more or less than

the original cost.

, T.!.n T%e M&$ke"

It is difficult to identify which is the right time to invest and which is the right time to take out the

money. There may be situations where stocks may not be rightly timed according to the market

leading to loss in the value of scheme.

9, #.J-.d."0

Investment made in unlisted euities or euity related securities might only be reali+able upon the

listing of the securities. 9ettlement problems could cause the scheme to miss certain investment

opportunities.

,88 S*OT An&l0/./ o4

MUTUA# FUND

STRENGTH

Good 4o$ new .n2e/"o$ &/ "%e 4-nd %&/ "o 5e !&n&ed 50 /3ec.&l.ed 4-nd !&n&e$,

Onl0 3$od-c"> w%.c% .n2e/"/ .n !one0 !&$ke"> de5" !&$ke" &nd eJ-."0 !&$ke" &" /&!e ".!e,

In2e/"!en" needed ./ co!3&$&".2el0 le// "%&n o"%e$ .n2e/"!en"/,

*EA+NESS

C-/"o!e$/ do no" 3$e4e$ ." 5ec&-/e o4 $./k &""&c%ed "o ." "%&" ./ !&$ke" $./k,

F-nd !&n&e$ .4 no" o.n "o 5e ood "%&n c-/"o!e$ w.ll no" o 4o$ "%&" 4-nd &/ $e"-$n de3end/

on 4-nd !&n&e$’/ &n&l0/./,

OPPORTUNITIES

C$e&".n 3o/.".2e .!&e &5o-" "%e 4-nd &nd c%&n.n "%e n&"-$e o4 "%e !&$ke" ."/el4,

-/


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M&$ke" 4o$ !-"-&l 4-nd ./ e3&nd.n,

G$e&" /co3e 4o$ new .n/"$-!en",

THREATS

Now "%e$e &$e !&n0 o"%e$ .n2e/"!en" .n/"$-!en"/> w%.c% &$e !o$e l-c$&".2e "%&n !-"-&l 4-nd,

Un&w&$ene// &!on .n2e/"o$ $e&$d.n !-"-&l 4-n

CHAPTER 9

#ITERATURE REVIE*,

" *ot of study have been done on the !utual 'und Performances by "sset !anagement

Company 3"!C6 >niversities and reacherhouses. "mong all some of them are follow,

8 .S%&$3e> *.ll.&! F, (8711)

The evaluation of portfolio performance. %rawing on results obtained in the field of

portfolio analysis economist Back *. Treynor has suggested a new predictor of mutual

fund performance one that differs from virtually all those used previously by

incorporating the volatility of a funds return in a simple yet meaningful manner

M.c%&el C, 'en/en (8716

" risk4adjusted measure of portfolio performance 3BensenFs alpha6 that estimates how

much a managerFs forecasting ability contributes to fundFs returns. "s indicated by

9tatman 36 the e 9%"& of a fund portfolio is the e(cess return of the portfolio over

8


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the return of the benchmark inde( where the portfolio is leveraged to have the benchmark

inde(Fs standard deviation. 9.$arayan &ao et. al. evaluated performance of Indian

mutual funds in a bear market through relative performance inde( risk4return analysis

TreynorFs ratio 9harpeFs ratio 9harpeFs measure BensenFs measure and 'amaFs measure.

The study used 5/ open4ended schemes 3out of total schemes of -::6 for computing

relative performance inde(. Then after e(cluding funds whose returns are less than risk4

free returns 8H schemes are finally used for further analysis. The results of performance

measures suggest that most of mutual fund schemes in the sample of 8H were able to

satisfy investorFs .

9 B.&n Ro0>

"n empirical study on conditional performance of Indian mutual funds. This paper uses a

techniue called conditional performance evaluation on a sample of eighty4nine Indian

mutual fund schemes .This paper measures the performance of various mutual funds with

both unconditional and conditional form of C"P! Treynor4 !a+uy model and

#enriksson4!erton model. The effect of incorporating lagged information variables into

the evaluation of mutual fund managersF performance is e(amined in the Indian conte(t.

The results suggest that the use of conditioning lagged information variables improves the

performance of mutual fund schemes causing alphas to shift towards right and reducing

the number of negative timing coefficients.

: M./%$&> ()

The mutual fund performance using lower partial moment. In this paper measures of

evaluating portfolio performance based on lower partial moment are developed. &isk from

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the lower partial moment is measured by taking into account only those states in which

return is below a pre4specified Ntarget rateK like risk4free rate. )shama 'ernandes3:6

evaluated inde( fund implementation in India. In this paper tracking error of inde( funds

in India is measured .The consistency and level of tracking errors obtained by some well4

run inde( fund suggests that it is possible to attain low levels of tracking error under

Indian conditions. "t the same time there do seem to be periods where certain inde( funds

appear to depart from the discipline of inde(ation.

; +, Pend&$&k.

T#E construction of mutual fund portfolios developed a multi4criteria methodology and

applied it to the T"%I9 multi4criteria decision aid method is employed

in order to develop mutual fundFs performance models.


53/92

An> C%en> &nd #.n (8776)

!utual fund management reaction to poor performance using data beginning in 1//-. They

observed that management had good reason to be concerned about poor performance as

management compensation is based upon the amount of money under management and

performance of the fund. Their analysis e(plores possible management reactions to poor

performance. !anagement could trade more often reduce costs take more risks or adopt

a more aggressive marketing strategy.

They found that the management of lower performing funds did more trading and had

greater e(pense ratios than the management of funds that had good performance. 7e

e(amine these issues and contribute to the understanding of mutual fund performance by

studying a later time period with a larger sample and by including fi(ed income as well as

euity funds. 7e also contribute by considering the role of economies of scale both at the

level of the individual fund and the level of the fund family.

6, Be$kow." &nd +o"ow." (6

There is a relationship between the fees the structure of the fees charged by asset managers

and the level of the funds performance. 7e build on and support these findings.

%roms and 7alker 316 studying 181 mutual funds over a 4year period found no long4

term persistence in returns e(penses or turnover rates. They e(amine a longer time period

than this study but a smaller sample of investment companies. Their findings could support

various e(planations. Changes in returns e(penses and turnover rate could be due to

changes in fund management or management philosophy. The findings are also consistent

the possibility that the uality of oversight from the independent trustees varies over time.

8:


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7, M&l%o"$& &nd Mc#eod (877)

"rgue that investors ignore aspects of fund management other than performance. They also

argue that this behavior is suboptimal in that net performance after consideration of fees and

ta(es is a more appropriate measure. 7e find that fund e(penses and ta( costs do

significantly reduce returns. 7e find that ta( costs are of greater magnitude than the costs of

managing the

CHAPTER :

RESEARCH METHODO#OGY

8-


55/92

Research Methodology is described that how the research activities are performed by several

methods by the help of the different date collected from different sources. In this there are mainly two

types of data is selected for the analysis i.e. Primary %ata which are collected through the direct

approach to several investors. The direct approach is done to collect the information through the

uestionnaire direct interview direct personal interview scheduling the data sources and by the help

of several surveys done on different investors of different mind makeup to know what their hidden

motives towards making a suitable portfolio are. Then after primary data sources it is important to

collect the secondary data and information. These secondary data also keep their importance towards

any findings and conclusion. These are collected through the Internet !aga+ines "rticles

$ewspapers 2usiness !aga+ines current Inde( position of security market and several statements

based on these market position given by the several analysts 'inance !inisters etc. "fter gathering

information it is uite essential to analy+e these information and conclude the result by several tools

of analysis like collecting the information selecting meaningful information then their scheduling.

"fter arranging valuable data in seuential way it is important to analy+e these by the help of

common factors repeating in the information which always be in security market to influence the

investors and key to fluctuate their motives. These important matters of fluctuation are important to

know because these help to guide investors in making a suitable portfolio and always be in the mind

of investorFs perception. "fter several steps of different way of analy+ing the investors perception the

final concluded portion are described in the conclusion part.

T%e ne" 3o$".on is Analysis and Discussion in which several approaches and researches previously

done by renowned financial analyst

Conclusion is most important part of any research activity because this include the final answer or

final concluding portion of the final findings. This is the last portion of this my project and this is

88


56/92

only based on my opinions with the help several information from primary and secondary data and

also by the help of previous analysis done facts.

Bibliography portion includes the references taken by several different books websites etc. because

these references are so scattered that it is not easy to simplify the investors due to unavailability of

reuired time so it also helps to take brief knowledge about this topic.

9,8 RESEARCH DESIGN,4

'or this study a survey research was adopted with the help of primary data. 'or getting

primary data the research tool was a structured uestionnaire.

9, SOURCE OF DATA

P$.!&$0 D&"&

Primary data reuired for the analysis is being collected directly from respondents through

uestionnaire. The type of primary data collected is primarily uantitative. The uestions in the

uestionnaire have been structured to provide uantitative data from responses. Therefore the results

of uantitative data were summari+ed with numbersSpercentages averages or other statistics.

Secondary Data

9econdary %ata for the project is being collected from sources like Internet &eading

!aterials of various Investment and 9ervices Products Catalog and


57/92

9,9 PERIOD OF STUDY

9tudy on the consumer perception and preferences toward mutual are done over the period of

two months that is Bune and Buly. %ata are collected over these period for the final analysis while as

to show the growth of mutual fund industry data is collected from :4 "pril H.

9,: SAMP#ING

Consumer 2ehavior "nalysis was done on a sample si+e of 08 respondents. The data is being

collected using a uestionnaire which will test different determinant factors. The customers are

analy+ed on the following parameters,

De!o$&3%.c P$o4.le

Soc.o@Econo!.c &nd B&ck$o-nd S"&"-/

Con/-!e$ Aw&$ene//

P$e4e$ence/ B&/ed on

• &isk Involved

• 2rand

• Past Performance

• Cost of Investment

• &eturns

• Customer 9atisfaction

80


58/92

TOO#S FOR DATA ANA#YSIS

;n the basis of the various parameters and attributes the awareness for the

industry has been framed. The results have been tested using statistical tools like pie

chart 2ar graph by software to analy+e the impact of consumer awareness toward

mutual fund industry.

8H


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CHAPTER ;

DATA ANA#YSIS?INTERPRETATION

"nalysis was carried out using statistical tools like Pie chart 2ar graph etc. The final analysis

has helped us to understand the Customer Perception and Preferences towards the investment

products offered by !"#I$%&" 'I$"$CE and overall about !utual 'und industry.

T%e /&!3le co!3o/.".on (Se> &e $o-3> Inco!e $o-3) 4o$ "%e /-$2e0 %&/ 5een /%own 5elow

Fig.2 Sample size!"

8/


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Fig # Sample size!"

Fig.$ Sample size!"

5


61/92

C-/"o!e$ Pe$ce3".on @ M-"-&l F-nd

Fig." Sample size!"

The above fig shows that out of 08 people 00Q were aware about !utual 'unds. This shows

that there is still a chance to make people aware about mutual fund and organi+ing sessions in the

offices and in the open markets can do this.

51


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Fig.% Sample size!"

The above fig shows that out of 08 people / people know about !utual 'unds through

banks. ;ther methods like T? advertisements and newspapers are other important modes that make

people aware about the !'.

5


63/92

Fig.! Sample size!"

The above fig shows that out of 08 people people are associated with about !utual 'unds

less than a year. "nd important fact is almost every one knows about the !utual 'und but 8 out of

08 are not associated with !utual fund and gives me a chance to tell them about various options and

schemes and make them associated with mutual funds.

5:


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Fig.& Sample size!"

The above fig shows that out of 08 people :0 people know about open ended and close4ended

!utual 'unds. "nd important fact is that less knows about the balanced schemes.

5-


65/92

Fig.' Sample size"( those )ho in*ested in MF

The above fig shows that out of 08 people people have invested in !utual 'unds with less

than 8k.

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Fig.+( Sample size!"

The above graph shows that the People are mostly investing for the period of 541 months.

The study shows that this is the period which has been mostly suitable the people for ma(imum

investment. "nd thus gives me another reason to target people with 9IP as it is a open ended

scheme and the returns are also good in this schemes.

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67/92

Fig.++ Sample size!"

The above graph shows that most of the respondents e(pect the returns to be around 1Q.

This shows that respondents want returns to be more than that of bank. "lso major chunk of

respondents want to get returns of 1418Q.

50


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Fig.+2 Sample size!"

The above graph shows the investment options followed by the people. 9till the old

investment options of insurance and fi(ed deposits are favorite among the people. The new

investment options of !utual funds and gold are catching up fast.

5H


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Fig.+# Sample size"(

The graph above shows the segregation of the people who are invested in mutual fund. "bout

85Q of the investors belong to the business class and :- Q too professionals. ;ne of the reasons for

this could be financial strength of these people. 9ervice class and retired class form the very small

5/


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INFLUENTIAL FACTORS

33

49

23

11

3424 25

11

34

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0102030405060

T r u s t

Brand NameCompetitive Benefts

Motivator

Demotivator

Services !ered"n#ormation $rovided

part of this in this category might be because they are risk averse.

Fig.+$ Sample size!"

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Fig.+" Sample size%(

9ample si+e for this analysis is 5 people who are using !"#I$%&" product.1 people I get

it while filling my uestionnaire and rest I get it trough their internal database.

In this fig satisfaction level of the people have been shown. 15Q of the people were delighted with

mutual funds of !"#I$%&" whereas 1-Q people were unhappy about the !"#I$%&" mutual

funds. #ere again the service given by !"#I$%&" or the e(perience they had previously in terms

of losses they bear. There is -Q population which is confused in the sense it is difficult for them

decide their satisfaction level.

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Fig.+% Sample size!"

The above graph shows the other important parameter which is considered by the investors is the

Trust parameter. The above graph shows the factors because of which people are avoiding

!"#I$%&". "nd the most important factor of these is lack of trust . !"#I$%&" group needs to

create more trust by 4M

1. Creating more awareness by putting up canopies and making more influential advertisements.

. 2e more transparent in their dealings.

:. !ake customer involvement more and more.

Fig. 17 Sample size-75

The graph shows the &isk factor which the customers want to avert. The perception of risk

varies depending upon the person the product and the situation and the culture. Those who want to

purchase the !utual 'unds want to avert the financial risk and Time risk more. 'inancial risk isrelated to the product and its performance while Time risk is the risk which is about the time spent in

getting the e(pected returns.

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Fig +& Sample size $(

!ost of the people are influenced by the returns which they get while investing in the mutual

funds. The research shows that -8Q people influenced by the returns 8Q people influenced by the

$"? 3$et "sset ?alue6 and :1Q people are influenced by the both 3&eturns and $"?6.

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Fig.+' Sample size2!

;ut of 08 those invested in 9IP 0 customers who know about 9IP out of 08 have knowledge

and invested in 9IP. "nd research show that most of the people interested in investing in the bracket

of 848.this again is very useful as in most of the "!CFs the minimum amount for 9IP is 1k

per month only

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CHAPTER ;

RECOMMENDATIONS?CONC#USION

,8 FOR INVESTMENT AND SERVICE DIVISION

8) #e" In2e/"!en" Ad2./o$0 Se$2.ce/ Me&n *%&" I" I/

They are not practicing the role of investment advisor in its truest sense. 7e used to sell only

those products which needed immediate attention in order to fulfill the targets even when we

knew that the product was hardly reuired by the customer.

) Ed-c&"e T%e C-/"o!e$

Educating the customer about basic know how about the mutual fund general insurance and

life insurance products.


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7hile this segment as a whole may outperform the larger companies the risks faced by the

companies are also higherSmore so in the case of the listed universe of mid4si+ed companies. "lso

the e(posure to the media sector while providing the benefits of diversification may not reduce the

risk profile.

The fund only has a dividend payout or a dividend reinvestment facility. Investors can opt for the

dividend payout facility and evaluate the reinvestment option at the time of declaration of dividend.

Do no" 3-" &ll "%e e/ .n one 5&/ke"@

%epending on oneFs goals and oneFs attitude towards risk an investor should spread his

money across different types of investment L euities bonds and cash. "n investor should also try to

diversify within each of these categories. 7ith euities for e(ample a mutual fund will invest your

money in a variety of companies but you may want to ensure you have a range of industry sectors

too.

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In2e/" &/ /oon &/ 3o//.5le@

The sooner you invest the more time your money will have to grow. If you delay you will

almost certainly have to invest much more to achieve a similar result.

Be&$ In M.nd T%&" In4l&".on *.ll E&" In"o Yo-$ S&2.n/&eturns on risk4free cash investments may sound respectable but when you subtract the current

rate of inflation you may not be so impressed. 'or significant long term growth you need to make

your money work a little harder. Inflation L The Ticking Time 2omb

In2e/" Re-l&$l0

Investing regularly can be a great way to build up a significant lump sum. The investor can also

benefit from what is known as the concept of O&upee cost averagingF. This means that if an investor

is investing in a mutual fund over the years he will pay the average price for units. If the market

goes up the unit one already own will increase in value. If the market goes down the ne(t

installment to be paid by the investor will fetch him more units.

C%oo/e Yo-$ F-nd/ C&$e4-ll0

"n investor should select investments on the basis of what is right for oneFs personal

circumstances and goals. If one is deciding on a mutual fund to invest in then donFt opt for the one

which is the flavor of the month unless one is sure that it will be right for oneFs needs in the years to

come. "nd an investor should not assume that all funds investing in Indian euities are essentially

the same L look at the details of what a fund invests in and check if one is comfortable with its

investment style and objectives.

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Re!e!5e$ T%&" T.!e No" T.!.n I/ T%e +e0 To S-cce//4-l In2e/".n

7hen an investor is planning an investment it can be tempting to wait for the market to reach a low

point. 2ut how will he know when this happens The investor runs the risk of missing out on the

significant rises that often occur in the early days of an upward trend. Even the e(perts cannot Ntime

the marketK with consistent success. It is better to choose an investment that one feels confident

about and take a long term view so that one has the time to ride out any ups and downs in the market.

Ge"".n T%e R.%" M.

'or the greatest long term growth potential one could simply invest all oneFs money in euity

mutual funds right from the start of oneFs investing period to the end. 2ut of course this would be a

high risk strategy. The markets could dip just before you need the money.

ThatFs why one needs to think about changing modifying and reviewing oneFs portfolio from time to

time. ;ne may want to aim for strong growth in the early years and then as the years go by lock in

any gains one has made and move into lower risk investments such as bonds. "s one gets closer to

needing oneFs money lower risk bond and cash investments could be given more emphasis.

+ee3 So!e C&/% A/.de

It is always a good idea to have some money in a deposit account in case of emergencies. Enough

to cover three monthsF living e(penses is often a rough guide to how much money you need as cash

with you. "nd make sure you can withdraw it when you need to without penalties.

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CONC#USION

In India mutual funds have a lot of potential to grow. !utual funds companies have to create and

market innovative products and frame distinct marketing strategies. Product innovation will be

one of key determinants to success. The mutual funds industry has to bring many innovative

concepts such as high yield bond funds principal protected funds long short funds arbitrate

funds dynamic 'unds precious metal funds and so on. The penetration of mutual funds can be

increased through investor education providing investor oriented value added services an

innovative distribution channels. !utual funds have filled during the bearish market conditions.

To sell successfully during the bear market there is a need to educate investors about risk4

adjusted returns and total portfolio return to enable them to informed decision. !utual funds need

to develop a wide distribution network to increase its reach and tap investments from all corners

and segments. Increased used of internet and development of alternative channels such as

financial advisors can play vital role in increasing the penetration of mutual fund.

!utual funds have come a long way but a lot more can be done.

1. Investment philosophy of all the fund houses are contradictory in nature. 9ome of them

targeting mostly the retail investor is conservative in nature.

. It had give a average above the average high return in comparison to its peer as well as

benchmark during the period which its can be observed .

:. !ost of the schemes in these funds actually appear to be undiversified which is apparent

from the gap between the standard deviation 3measure of total risk6 and 2eta 3!easure of

9ystematic risk6. This can be justified as Treynor ratio indicates that the fund

outperformed the market whereas 9harpe &atio indicates that the fund did not perform as

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well as the market. This is because the fund had a relatively large amount of uniue risk or

unsystematic risk i.e. 9tandard Error of the Estimate.

1. "lmost all the scheme of the funds had given a good positive return. This was because of

The %omestic markets perform good good economic data progress on the reforms front

and a Nfeel good budget.

The e(pectation that the economy will recover. The strong economic prospects and good

earnings potential of corporate India makes a compelling case for further upside albeit

with some corrections. 9ustained retail interest could help boost the markets during this

year.

The continuation of bullish trend of the stock market for the second consecutive uarter.

. The basis of performance measures we can say that %29 Cholla opportunity fund

performing well almost all parameter measures such as 9harp ratio Treynor measure !4

9uare measure Bensen "lpha etc.

:. In the second uarter of - all the funds had given a negative return. This was because

the uarter saw the domestic markets witness a sharp correction due to Opoll worriesF and

the ensuing uncertainty over policy direction under the new government. The change in

sentiment was e(acerbated by various global factors such as rising interest rates oil prices

slowdown in China and concerns over their impact on 'II flows and the economy.

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-. all the scheme had given a positive return. This was because the market In the third

uarter of - recovery was observed and almost has bounced back sharply from the

lows witnessed in the previous uarter as a result of good corporate earnings the >nion

2udget as well as the modifications announced to the capital gains ta( and the securities

transactions ta( 39TT6.

8. In the fourth uarter of - continuation of the bullish trend was observed and almost all

the scheme had given a positive return. This is because %omestic markets surged on robust

'II flows and closed the uarter and the year at new all4time highs. E(pectations of a good

uarterly results season from corporate India given the possible rise in advance ta(

payments also boosted sentiment.

5. >TI !oney !arket 'und and Templeton India T!" were however not affected by the

#ighs and *ows of the economy and the market. "nd hence was able to give a sustained

earning throughout all the uarter.

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!utual 'unds can be classified as open4end and closed4end mutual funds. Closed4end

funds are traded like other securitiesM they do not redeem units for their investors. ;pen4end

funds will redeem units for net asset value at the reuest of the investor.

$et asset value euals the market value of assets held by a fund minus the liabilities of

the fund divided by the shares outstanding.

!utual funds free the individual from many of the administrative burdens of owning

individual securities and offer professional management of the portfolio.

!utual funds are often categori+ed by investment policy. !ajor policy groups include

money market fundsM fi(ed4income fundsM balanced and income fundsM asset allocation

fundsM inde( fundsM and speciali+ed sector funds.

ualitative analysis has shown that to a close appro(imation stock prices seem to

follow a random walk with no discernible predictable patterns that investors can e(ploit.

9uch findings are now taken to be evidence of market efficiency that is evidence that

market prices reflect all currently available information.

uantitative analysis focuses on stock price patterns and on pro(ies for buy or sell

pressure in the market. ualitative analysis focuses on the determinants of the underlying

value of the firm such as current profitability and growth prospects. 2ecause both types of

analysis are based on public information neither should generate e(cess profits if market are

operating efficiently.

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Event studies are used to evaluate the market impact of events of interest using

abnormal stock returns. 9uch studies usually show that there is some leakage of inside

information to some market participants before the public announcement date. Therefore

insiders do seem to be able to e(ploit their access to information to at least a limit e(tent.

The appropriate performance measure depends on the role of the portfolio to be

evaluated. "ppropriate performance measures are as follows,

i. 9harpe, when the portfolio represents the entire investment fund.

ii. Information ratio, when the portfolio r epresents the active portfolio to beoptimally mi(ed with the passive portfolio.

iii. Treynor or Bensen, when the portfolio represents one sub portfolio of many.

!any observations are reuired to eliminate the effect of the Nluck of the drawK from

the evaluation process because mutual fund returns commonly are very NnoisyK.

1. The shifting mean and variance of actively managed mutual funds make it even harder to

assess performance. " typical e(ample is the attempt of portfolio managers to time the

market resulting in ever4changing mutual fund betas.

11. Common attribution procedures partition performance improvements to asset allocation

sector selection and security selection. Performance is assessed by calculating departures of

mutual funds composition from a benchmark or neutral portfolio.

1. 7e took risk4adjusted return rather than total return of large sample of mutual fund paying

more attention on bench mark performances.

1:. 2est fund consider which are performing better than the market or benchmark.

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1-. 2y and large the performances record of professionally manage funds lends little credence to

claims that most professionals can consistently beat the market.

!utual fund managers outperforming the market at different periods in the market cycle has

become a topic of much interest after the peculiar markets we have e(perienced over the last

four to five years. The purpose of this paper is two foldM to e(amine whether or not fund

managers are able to outperform the market on a risk adjusted basis and to e(amine if there

are different periods in the market cycle when managers tend to perform better. !ore

specifically the paper e(amines whether mutual.

The !utual fund investments are e(posed to market risks and are e(pected to match the &eturns from

their benchmark indices are something all aware investors understand. This brings asset "llocation

into playM indicating how much the fund is diversified across stock sectors cash. 7ith 9E2I

&egulation capping the e(posure to individual stocks and sectors a fundFs cash holding is something

that purely in hands of the fund manager. Cash allocation is tricky as it is to meet redemptions as well

as for spotting new investment opportunities.

#aving large cash protects the fund from a sharp downfall. 2ut it is also implies that

investors miss out ;n sudden upward spurts. In recent times we have e(perienced an increasing

appetite for cash among euity funds especially in march H. The uestion is does holding more

cash than normal reflects inefficient fund management To find this answer it has to analyses that

euity funds over a three year Period a fairly long term investment.

Cash is a critical component of euity mutual funds portfolios but there is opportunity cost of

holding cash. 'unds that ma(imi+e shareholder wealth should set the funds cash holding at a level

that the marginal benefit of cash holdings euals the marginal cost. " good allocation

to cash can see the fund manager utili+e funds optimally and tide over both the markets ups down.

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SUGGESTIONS

9ince the individual investor with3has6 limited capital to invest in market to get the benefit of

higher return provided by the market in lieu of lower return offered by the banks for this

purpose heAshe invested in the !utual 'unds. 7here as !utual 'unds are subject to market

risk.

There are a wide variety of investment companies the avowed purpose to serve the needs of

both individual as well as institutional investors. 'or this purpose the Nprospectus objectivesK

is to adopt the Naggressive strategyK to get the benefit of the Nefficient marketsK reason for

investors to utili+e mutual funds as investment vehicles.

since fund managerFs are adopted aggressive approach for getting higher return provided by

the market. Therefore not more consider the risk of the market as well as stock of portfolio. "s

an fund manager must consider some fundamental measures which provides the overall

scenario of the mutual funds strategy.

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T%e/e !e&/-$e/ &$e,

1. Positive and higher sharp ratio.

.Positive alpha

:.2eta which has lesser value than 1

-.'und which has positively &49uare

8Positive and higher Treynor &atio

5.Positive and higher Bensen "lpha

0.*esser standard deviations

H.Compare funds returns with 2enchmark returns3funds returns should be higher6.

H5

8/20/2019 Mahindra Fina

Mahindra Finance 107

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Transcript of Mahindra Finance 107