Factors Affecting Investors Preference For Mutual Funds in India

FACTORS AFFECTING INVESTORS PREFERENCE FOR MUTUAL FUNDS IN INDIA
SUMMER INTERNSHIP
PROGRAMME
INTERIM REPORT
ON
FACTORS AFFECTING
INVESTORS PREFERENCE
FOR MUTUAL FUNDS
IN INDIA
Submitted by:
NILAMADHAV SAMAL
08BS0001995
1
CONTENTS
Abstract 3
Objective 4
Limitation 5
Company profile 6
Introduction 6
Credit Rating 6
Products and services 6
Mahindra Fin Smart : Investment Advisory Services 7
Investments 8
Investment Needs 8
Choosing the Right Investment Option 10
Investment Options in India 12
Mutual Funds 16
Organization 18
Regulatory Authorities 20
Types Of Mutual Funds 21
Advantages / Disadvantages of Mutual Funds 26
History 28
Analysis of a fund/scheme. 31
Further Scope of Study-
Analysis of a fund/scheme with examples
Comparative analysis of different investment Options
Market Survey 34
Research Methodology 34
Sample Selection 36
Demographic analysis of Investment patterns 37
Further Scope of the study 42
Factors(Intrinsic and Environmental) affecting selection of a scheme 43
Further Scope of Study 44
Influence of Product Qualities on Scheme Selection 45
Further Scope of Study 47
Influence of Fund Sponsor Qualities on Scheme Selection
Influence of Investor Services on Scheme Selection
Suggestions
Conclusion
Annexure I 48
References 52
2
ABSTRACT
The project contains the brief description of the mutual fund industry in
general. It also includes the study and comparison of other investment
products available in the market like Insurance plans, ULIP, Mutual Funds,
Savings account, Provident funds, Postal savings and Fixed Deposits and
Stocks available in the market.
A survey was conducted to gather primary data to judge the factors that
influence investors before they invest in any of the investment tools and
thus the first part of the paper scrutinizes the investor’s perception and
analyzes the relation between the features of the products and the investors’
requirements. With this back ground an attempt has been made in this
paper to categorize investors based on various demographic factors such as
age, sex, income level and occupation.
The second part of the paper deals exclusively in Mutual Funds. It is widely
believed that MF is a retail product designed to target small investors,
salaried people and others who are intimidated by the stock market but,
nevertheless, like to reap the benefits of stock market investing. At the retail
level, investors are unique and are a highly heterogeneous group. Hence,
designing products that are customer tailored to the different needs is
important. Currently (as on 23/3/2009) there are more than 2500 schemes
with varied objectives and AMCs are competing against each other by
launching new products or repositioning old ones. MF industry today is facing
competition not only from within the industry but also from other financial
products that provide many of the same economic functions as mutual funds
but are not strictly MFs. Thus the second part of the paper attempts to study
the factors influencing the fund/scheme selection behavior of Retail
Investors who invest in Mutual funds.
3
OBJECTIVE
· To categorize investors as being inclined towards investment products

based on certain characteristic such as sex, age, academic qualifications,
marital status, occupation, annual income etc.
· In order to examine the issues raised above, this paper has the following
objectives before it :
1) To understand the savings avenue preference among MF investors
2) To identify the features the investors look for in Mutual Fund products
3) To identify the scheme preference of investors
4) To identify the factors that influences the investor’s fund/scheme
selection
5) To identify the information sources influencing the scheme selection
decision.
· This paper shall also look into the brief history of mutual funds industry in
India; try to classify them according to the various schemes and products
offered. It shall also provide a comparative analysis between different
types of mutual funds in India and between mutual funds and other
investment products.
4
LIMITATIONS
i) Sample size was limited to 100 investors who have invested through
Mahindra only. The sample size may not adequately represent the
national market.
ii) This study shall not been conducted over an extended period of time
considering both market ups and downs. The market state has a
significant influence on the buying patterns and preferences of investors..
The study cannot capture such situations.
iii) The study shall take into account the preferences of investors who
have invested in schemes offered by the distributor services of Mahindra
only. As such there will be a element of biasness in the study.
5
COMPANY PROFILE
MAHINDRA AND MAHINDRA FINANCIAL SERVICES LTD.
Mahindra and Mahindra Financial Services Limited is one of India’s leading

non-banking finance companies focused on the rural and semi-urban sector
providing finance for utility vehicles, tractors and cars with largest network
of branches covering these areas. It is a subsidiary of M&M, a leading tractor
and UV manufacturer with over 60 years experience in the Indian market.
The Company was incorporated on 1st January, 1991 as Maxi Motors
Financial Services Limited and received Certificate of Commencement of
Business on 19th February, 1991. The name has been changed to Mahindra
& Mahindra Financial Services Limited and Fresh Certificate of Incorporation
was received on 3rd November, 1992.
Credit Rating:
• Credit Rating Information Services Limited (CRISIL) has reviewed the

performance of the Company and reaffirms FAA for Fixed Deposit
program and AA for Long term Debt and P1+ for Short term Debt.
• Company has also been awarded “Ind AA+” rating by Duff & Phelps
(DCR) for the Rs.50 crores Long Term Non- Convertible Debentures.
Products & Services
• It provides financial loans to tractors, utility vehicles, light commercial

vehicles, cars, two wheelers, three-wheelers and used vehicles.
• Its services include Mutual Fund distributions and financial advisory

services also.
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• In May 2004, as a supplement to its lending business it started an

insurance broking business through its wholly owned subsidiary, Mahindra
Insurance Brokers Limited (MIBL). Mahindra Finance has already started
distributing insurance products in rural and semi urban India through its
subsidiary Mahindra Insurance Brokers Limited.
• It has also recently commenced its mutual fund distribution business and
are exploring opportunities of entering housing loans and personal loans
in rural and semi urban markets.
• It believes that the growth of their interactive, people-driven business

model depends on the building of strong, long-term personal
relationships. This coupled with superior knowledge of rural markets, and
the ability to tailor products, positions the company well to continue to
meet rural and semi-urban credit needs and provide competitive, flexible
and speedy lending services.
MAHINDRA FINANCE - FINSMART: INVESTMENT ADVISORY

SERVICES
• Now Mahindra finance has started its new venture named Mahindra
Finance- FinSmart which is an investment advisory services provider.
• It provides financial planning solutions to customers by which they can

get all those things which they want to achieve.
• And as in today’s scenario Mutual Funds is the best available investment

option so it deals in MFs. Its planners tell people for how long and how
much money they have to invest in MFs.
• In just over three years since its launch, it have strongly cemented its
position as a leading player in industry based on its pioneering strategy
i.e., “Where your Investment Matters and not its size”.
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INVESTMENTS
Savings form an important part of the economy of any nation. With the
savings invested in various options available to the people, the money acts
as the driver for growth of the country. Indian financial scene too presents a
plethora of avenues to the investors. Though certainly not the best or
deepest of markets in the world, it has reasonable options for an ordinary
man to invest his savings.
An investment can be described as perfect if it satisfies all the needs of all

investors. So, the starting point in searching for the perfect investment
would be to examine investor needs. If all those needs are met by the
investment, then that investment can be termed the perfect investment.
Most investors and advisors spend a great deal of time understanding the
merits of the thousands of investments available in India. Little time,
however, is spent understanding the needs of the investor and ensuring that
the most appropriate investments are selected for him.
The Investment Needs of an Investor

By and large, most investors have eight common needs from their
investments: 1. Security of Original Capital; 2. Wealth Accumulation; 3.
Comfort Factor; 4. Tax Efficiency; 5. Life Cover; 6. Income; 7. Simplicity; 8.
Ease of Withdrawal; 9. Communication.
· Security of original capital: The chance of losing some capital has

been a primary need. This is perhaps the strongest need among
investors in India, who have suffered regularly due to failures of the
financial system.
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· Wealth accumulation: This is largely a factor of investment

performance, including both short-term performance of an investment
and long-term performance of a portfolio. Wealth accumulation is the
ultimate measure of the success of an investment decision.
· Comfort factor: This refers to the peace of mind associated with an

investment. Avoiding discomfort is probably a greater need than
receiving comfort. Reputation plays an important part in delivering the
comfort factor.
· Tax efficiency: Legitimate reduction in the amount of tax payable is

an important part of the Indian psyche. Every rupee saved in taxes
goes towards wealth accumulation.
· Life Cover: Many investors look for investments that offer good return
with adequate life cover to manage the situations in case of any
eventualities.
· Income: This refers to money distributed at intervals by an

investment, which are usually used by the investor for meeting regular
expenses. Income needs tend to be fairly constant because they are
related to lifestyle and are well understood by investors.
· Simplicity: Investment instruments are complex, but investors need

to understand what is being done with their money. A planner should
also deliver simplicity to investors.
· Ease of withdrawal: This refers to the ability to invest long term but
withdraw funds when desired. This is strongly linked to a sense of
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ownership. It is normally triggered by a need to spend capital, change

investments or cater to changes in other needs. Access to a long-term
investment at short notice can only be had at a substantial cost.
· Communication: This refers to informing and educating investors

about the purpose and progress of their investments. The need to
communicate increases when investments are threatened.
· Security of original capital is more important when performance falls.

· Performance is more important when investments are performing
well.
· Failures engender a desire for an increase in the comfort factor.
Perfect investment would have been achieved if all the above-mentioned

needs had been met to satisfaction. But there is always a trade-off involved
in making investments. As long as the investment strategy matches the
needs of investor according to the priority assigned to them, he should be
happy.
The Ideal Investment strategy should be a customized one for each investor
depending on his risk-return profile, his satisfaction level, his income, and
his expectations. Accurate planning gives accurate results. And for that there
must be an efficient and trustworthy roadmap to achieve the ultimate goal of
wealth maximization.
Choosing the Right Investment Options
After understanding the concept of investment, the investors would like to

know how to go about the task of investment, how much to invest at any
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moment and when to buy or sell the securities, This depends on investment
process as investment policy, investment analysis, valuation of securities,
portfolio construction and portfolio evaluation and revision. Every investor
tries to derive maximum economic advantage from his investment activity.
For evaluating an investment avenues are based upon the rate of return,
risk and uncertainty, capital appreciation, marketability, tax advantage and
convenience of investment. The following Table should give the clear picture
relating to the investors’ investment decisions in various financial market
instruments. The choice of the best investment options will depend on
personal circumstances as well as general market conditions. For example, a
good investment for a long-term retirement plan may not be a good
investment for higher education expenses. In most cases, the right
investment is a balance of three things: Liquidity, Safety and Return.
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Investment Options in India
Fixed Deposits – They cover the fixed deposits of varied tenors offered by
the commercial banks and other non-banking financial institutions. These
are generally a low risk prepositions as the commercial banks are believed to
return the amount due without default. By and large these FDs are the
preferred choice of risk-averse Indian investors who rate safety of capital &
ease of investment above all parameters. Largely, these investments earn a
marginal rate of return of 6-8% per annum.
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Government Bonds – The Central and State Governments raise money

from the market through a variety of Small Saving Schemes like national
saving certificates, Kisan Vikas Patra, Post Office Deposits, Provident Funds,
etc. These schemes are risk free as the government does not default in
payments. But the interest rates offered by them are in the range of 7% -
9%.
Money-back insurance - Insurance in India is mostly sold and bought as

investment products. They are preferred because of their add-on benefits
like financial life-cover, tax-savings and satisfactory returns. Even if one
does not manage to save money and invest regularly in financial
instruments, with insurance, the policyholder has no choice. If he does not
pay his premiums on time, his insurance cover will lapse. Money-back
Insurance schemes are used as investment avenues as they offer partial
cash-back at certain intervals. This money can be utilized for children’s
education, marriage, etc.
Endowment Insurance – These policies are term policies. Investors have

to pay the premiums for a particular term, and at maturity the accrued
bonus and other benefits are returned to the policyholder if he survives at
maturity.
Bullion Market – Precious metals like gold and silver had been a safe
heaven for Indian investors since ages. Besides jewellery these metals are
used for investment purposes also. Since last 1 year, both Gold and Silver
have highly appreciated in value both in the domestic as well as the
international markets. In addition to its attributes as a store of value, the
case for investing in gold revolves around the role it can play as a portfolio
diversifier.
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Stock Market – Indian stock markets particularly the BSE and the NSE, had
been a preferred destination not only for the Indian investors but also for the
Foreign investors.. Although Indian Markets had been through tough times
due to various scams, but history shows that they recovered very fast. Many
types of scrip had been value creators for the investors. People have earned
fortunes from the stock markets, but there are people who have lost
everything due to incorrect timings or selection of fundamentally weak
companies.
Real Estate- Returns are almost guaranteed because property values are
always on the rise due to a growing world population. Residential real estate
is more than just an investment. There are more ways than ever before to
profit from real estate investment.
Mutual Funds - There is a collection of investors in Mutual funds that have

professional fund managers that invest in the stock market collectively on
behalf of investors. Mutual funds offer a better route to investing in equities
for lay investors. A mutual fund acts like a professional fund manager,
investing the money and passing the ret urns to its investors. All it deducts is
a management fee and its expenses, which are declared in its offer
document.
Unit Linked Insurance Plans - ULIPs are remarkably alike to mutual funds
in terms of their structure and functioning; premium payments made are
converted into units and a net asset value (NAV) is declared for the same. In
traditional insurance products, the sum assured is the corner stone; in ULIPs
premium payments is the key component.
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MUTUAL FUNDS
INTRODUCTION
Mutual Funds over the years have gained immensely in their popularity.
Apart from the many advantages that investing in mutual funds provide like
diversification, professional management, the ease of investment process
has proved to be a major enabling factor. However, with the introduction of
innovative products, the world of mutual funds nowadays has a lot to offer
to its investors. With the introduction of diverse options, investors needs to
choose a mutual fund that meets his risk acceptance and his risk capacity
levels and has similar investment objectives as the investor.
With the plethora of schemes available in the Indian markets, an investors

needs to evaluate and consider various factors before making an investment
decision. Since not everyone has the time or inclination to invest and do the
analysis himself, the job is best left to a professional. Since Indian economy
is no more a closed market, and has started integrating with the world
markets, external factors which are complex in nature affect us too. Factors
such as an increase in short-term US interest rates, the hike in crude prices,
or any major happening in Asian market have a deep impact on the Indian
stock market. Although it is not possible for an individual investor to
understand Indian companies and investing in such an environment, the
process can become fairly time consuming. Mutual funds (whose fund
managers are paid to understand these issues and whose Asset Management
Company invests in research) provide an option of investing without getting
lost in the complexities.
Most importantly, mutual funds provide risk diversification: diversification of

a portfolio is amongst the primary tenets of portfolio structuring, and a
necessary one to reduce the level of risk assumed by the portfolio holder.
Most of the investors are not necessarily well qualified to apply the theories
of portfolio structuring to their holdings and hence would be better off
leaving that to a professional. Mutual funds represent one such option.
Definition- A Mutual Fund is a trust that pools the savings of a number of

investors who share a common financial goal. The money thus collected is
then invested in capital market instruments such as shares, debentures and
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other securities. The income earned through these investments and the
capital appreciation realised are shared by its unit holders in proportion to
the number of units owned by them. Thus a Mutual Fund is the most suitable
investment for the common man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities at a relatively low
cost. The flow chart below describes broadly the working of a mutual fund:
Mutual Fund Operation Flow Chart
The flow chart below describes broadly the working of a mutual fund:
Many Investors with common financial objectives pool their money
Investors on a proportionate basis, get mutual fund units for the sum
contributed to the pool
The money collected from the investors is invested into shares, debentures
and other securities by fund managers.
The fund manager realizes gain or losses, and collect dividends or interest
income
Any capital gain or loss from such investors are passed onto the investors in
the proportion of number of units held by them.
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ORGANISATION OF A MUTUAL FUND
There are many entities involved and the diagram below illustrates the
organizational set up of a mutual fund
Mutual funds
Mutual fund is vehicle that facilitates a number of investors to pool their
money and have it jointly managed by a professional money manager
Sponsor
Sponsor is the person who acting alone or in combination with another body
corporate establishes a mutual fund. The Sponsor is not responsible or liable
for any loss or shortfall resulting from the operation of the Schemes beyond
the initial contribution made by it towards setting up of the Mutual Fund.
Trustee
Trustee is usually a company (corporate body) or a Board of Trustees (body
of individuals). The main responsibility of the Trustee is to safeguard the
interest of the unit holders and ensure that the AMC functions in the interest
of investors and in accordance with the Securities and Exchange Board of
India (Mutual Funds) Regulations, 1996.
Asset Management Company (AMC)
The AMC is appointed by the Trustee as the Investment Manager of the
Mutual Fund. At least 50% of the directors of the AMC are independent
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directors who are not associated with the Sponsor in any manner. The AMC
must have a net worth of at least 10 crores at all times.
Transfer Agent
The AMC if so authorised by the Trust Deed appoints the Registrar and
Transfer Agent to the Mutual Fund. The Registrar processes the application
form, redemption requests and dispatches account statements to the unit
holders. The Registrar and Transfer agent also handles communications with
investors and updates investor records.
Terms associated with a Mutual Fund
Net Asset Value (NAV) - Net Asset Value is the market value of the assets
of the scheme minus its liabilities. The per unit NAV is the net asset value of
the scheme divided by the number of units outstanding on the Valuation
Date.
Sale Price- Is the price you pay when you invest in a scheme. Also called
Offer Price. It may include a sales load.
Repurchase Price- Is the price at which a close-ended scheme repurchases
its units and it may include a back-end load. This is also called Bid Price.
Redemption Price- Is the price at which open-ended schemes repurchase
their units and close-ended schemes redeem their units on maturity. Such
prices are NAV related.
Repurchase or ‘Back-end’ Load / Exit load - Is a charge collected by a
scheme when it buys back the units from the unit holders.
Entry load- Entry load is the commission that an investor has to pay while
purchasing units of a mutual fund. This is a certain percentage that the
mutual fund charges to meet its expenses.
Credit Rating- Credit ratings measure a borrower’s creditworthiness and
helps in comparison of credit quality, this is true within a country and also
18
across countries. Issuer credit rating measures the creditworthiness of the

borrower including its capacity and willingness to meet financial needs.
Regulatory Authorities
To protect the interest of the investors, SEBI formulates policies and

regulates the mutual funds. It notified regulations in 1993 (fully revised in
1996) and issues guidelines from time to time. MF either promoted by public
or by private sector entities including one promoted by foreign entities is
governed by these Regulations.
SEBI approved Asset Management Company (AMC) manages the funds by

making investments in various types of securities. Custodian, registered with
SEBI, holds the securities of various schemes of the fund in its custody.
According to SEBI Regulations, two thirds of the directors of Trustee

Company or board of trustees must be independent.
The Association of Mutual Funds in India (AMFI) reassures the investors in

units of mutual funds that the mutual funds function within the strict
regulatory framework. Its objective is to increase public awareness of the
mutual fund industry.
AMFI also is engaged in upgrading professional standards and in promoting

best industry practices in diverse areas such as valuation, disclosure,
transparency etc.
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TYPES OF MUTUAL FUND SCHEMES
BY STRUCTURE
1. Open - Ended Schemes:
An open-end fund is one that is available for subscription all through the
year. These do not have a fixed maturity. Investors can conveniently buy
and sell units at Net Asset Value ("NAV") related prices. The key feature of
open-end schemes is liquidity.
2. Close - Ended Schemes:
A closed-end fund has a stipulated maturity period which generally ranging

from 3 to 15 years. The fund is open for subscription only during a specified
period. Investors can invest in the scheme at the time of the initial public
issue and thereafter they can buy or sell the units of the scheme on the
stock exchanges where they are listed. In order to provide an exit route to
the investors, some close-ended funds give an option of selling back the
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units to the Mutual Fund through periodic repurchase at NAV related prices.
SEBI Regulations stipulate that at least one of the two exit routes is provided
to the investor.
3. Interval Schemes:
Interval Schemes are that scheme, which combines the features of open-
ended and close-ended schemes. The units may be traded on the stock
exchange or may be open for sale or redemption during pre-determined
intervals at NAV related prices.
By investment objective :
Growth Schemes: Growth Schemes are also known as equity schemes. The
aim of these schemes is to provide capital appreciation over medium to long
term. These schemes normally invest a major part of their fund in equities
and are willing to bear short-term decline in value for possible future
appreciation.
Income Schemes: Income Schemes are also known as debt schemes. The
aim of these schemes is to provide regular and steady income to investors.
These schemes generally invest in fixed income securities such as bonds and
corporate debentures. Capital appreciation in such schemes may be limited.
Balanced Schemes: Balanced Schemes aim to provide both growth and

income by periodically distributing a part of the income and capital gains
they earn. These schemes invest in both shares and fixed income securities,
in the proportion indicated in their offer documents (normally 50:50).
Money Market Schemes: Money Market Schemes aim to provide easy

liquidity, preservation of capital and moderate income. These schemes
generally invest in safer, short-term instruments, such as treasury bills,
certificates of deposit, commercial paper and inter-bank call money.
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The risk return trade-off indicates that if investor is willing to take higher
risk then correspondingly he can expect higher returns and vise versa if he
pertains to lower risk instruments, which would be satisfied by lower
returns. For example, if an investors opt for bank FD, which provide
moderate return with minimal risk. But as he moves ahead to invest in
capital protected funds and the profit-bonds that give out more return which
is slightly higher as compared to the bank deposits but the risk involved also
increases in the same proportion.
Thus investors choose mutual funds as their primary means of investing, as

Mutual funds provide professional management, diversification, convenience
and liquidity. That doesn’t mean mutual fund investments risk free. This is
because the money that is pooled in are not invested only in debts funds
which are less riskier but are also invested in the stock markets which
involves a higher risk but can expect higher returns. Hedge fund involves a
very high risk since it is mostly traded in the derivatives market which is
considered very volatile.
BY NATURE
1. Equity fund:
These funds invest a maximum part of their corpus into equities holdings.
The structure of the fund may vary different for different schemes and the
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fund manager’s outlook on different stocks. The Equity Funds are sub-
classified depending upon their investment objective, as follows:
· Diversified Equity Funds.

· Mid-Cap Funds.
· Sector Specific Funds.
· Tax Savings Funds (ELSS).
Equity investments are meant for a longer time horizon, thus Equity
funds rank high on the risk-return matrix.
2. Debt funds:
The objective of these Funds is to invest in debt papers. Government

authorities, private companies, banks and financial institutions are some of
the major issuers of debt papers. By investing in debt instruments, these
funds ensure low risk and provide stable income to the investors. Debt funds
are further classified as:
Gilt Funds: Invest their corpus in securities issued by Government,

popularly known as Government of India debt papers. These Funds carry
zero Default risk but are associated with Interest Rate risk. These schemes
are safer as they invest in papers backed by Government.
Income Funds: Invest a major portion into various debt instruments such
as bonds, corporate debentures and Government securities. They provide a
fixed return over each period of time.
MIPs: Invests maximum of their total corpus in debt instruments while they
take minimum exposure in equities. It gets benefit of both equity and debt
market. These scheme ranks slightly high on the risk-return matrix when
compared with other debt schemes.
Short Term Plans (STPs): Meant for investment horizon for three to six
months. These funds primarily invest in short term papers like Certificate of
Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is
also invested in corporate debentures.
Liquid Funds: Also known as Money Market Schemes, These funds provides
easy liquidity and preservation of capital. These schemes invest in short-
term instruments like Treasury Bills, inter-bank call money market, CPs and
CDs. These funds are meant for short-term cash management of corporate
houses and are meant for an investment horizon of 1day to 3 months. These
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schemes rank low on risk-return matrix and are considered to be the safest
amongst all categories of mutual funds.
3. Balanced funds :
As the name suggest they, are a mix of both equity and debt funds. They
invest in both equities and fixed income securities, which are in line with
pre-defined investment objective of the scheme. These schemes aim to
provide investors with the best of both the worlds. Equity part provides
growth and the debt part provides stability in returns.
High Risk
Equit Funds,
MIPs Funds
MEDIUM RISK
Balanced Funds
LOW RISK
Debt Funds, Gilt funds, Income Funds, STPs,
Liqiud Funds
Types of returns
There are three ways, where the total returns provided by mutual funds can
be enjoyed by investors.
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Income is earned from dividends on stocks and interest on bonds. A fund

pays out nearly all income it receives over the year to fund owners in the
form of a distribution.
If the fund sells securities that have increased in price, the fund has a capital
gain. Most funds also pass on these gains to investors in a distribution.
If fund holdings increase in price but are not sold by the fund manager, the
fund's shares increase in price. You can then sell your mutual fund shares for
a profit. Funds will also usually give you a choice either to receive a check
for distributions or to reinvest the earnings and get more shares.
Advantages of Investing Mutual Funds :
1. Professional Management - The basic advantage of funds is that, they

are professional managed, by well qualified professional. Investors purchase
funds because they do not have the time or the expertise to manage their
own portfolio. A mutual fund is considered to be relatively less expensive
way to make and monitor their investments. The professional fund managers
who supervise fund’s portfolio take desirable decisions viz., what scripts are
to be bought, what investments are to be sold and more appropriate
decisions
2. Diversification of Risk - Purchasing units in a mutual fund instead of

buying individual stocks or bonds, the investors risk is spread out and
minimized up to certain extent. The idea behind diversification is to invest in
a large number of assets so that a loss in any particular investment is
minimized by gains in others.
3. Economies of Scale - Mutual fund buy and sell large amounts of

securities at a time, thus help to reducing transaction costs, and help to
bring down the average cost of the unit for their investors.
4. Liquidity - Just like an individual stock, mutual fund also allows investors
to liquidate their holdings as and when they want. Mutual funds units can
either be sold in the share market as SEBI has made it obligatory for closed-
ended schemes to list themselves on stock exchanges. For open-ended
schemes investors can always approach the fund for repurchase at net asset
value (NAV) of the scheme. Such repurchase price and NAV is advertised in
newspaper for the convenience of investors as to timings of such buy and
sell. They have extensive research facilities at their disposal, can spend full
time to investigate and can give the fund a constant supervision.
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5. Simplicity - Investments in mutual fund is considered to be easy,

compare to other available instruments in the market, and the minimum
investment is small. Most AMC also have automatic purchase plans whereby
as little as Rs. 2000, where SIP start with just Rs.50 per month basis.
6 Safety of Investments-Besides depending on the expert supervision of

fund managers, the legislation in a country (like SEBI in India) also provides
for the safety of investments. Mutual funds have to broadly follow the laid
down provisions for their regulations, SEBI acts as a watchdog and attempts
whole heatedly to safeguard investor’s interests.
7. Tax Shelter: Depending on the scheme of mutual funds, tax shelter is

also available. As per the Union Budget-2003, income earned through
dividends from mutual funds is 100% tax-free at the hands of the investors.
Close ended schemes ELSS schemes with a minimum of 3 years lock in

period also provide tax exemption to the investor. Long term Capital gains
are also exempted from tax for equity funds.
9. The concept of Systematic Investment plan and Rupee cost

averaging- Unlike other equity linked product and shares or stocks Mutual
funds provide the added benefit of Systematic Investment plan. Here the
money may be invested over a longer horizon of time in equal installments.
Our natural instinct might be to stop investing if the price starts to drop—but
history suggests that the best time to invest may be when you are getting
good value. Rupee-cost averaging can be an effective strategy with funds or
stocks that can have sharp ups and downs, because it gives you more
opportunities to purchase shares less expensively. The benefit of this
approach is that, over time, you may reduce the risk of having bought
shares when their cost was highest.
Disadvantages of Investing Mutual Funds:
1. Professional Management- Some funds don’t perform as their

management is not dynamic enough to explore the available opportunity in
the market, thus many investors debate over whether or not the so-called
professionals are any better than mutual fund or investor himself, for picking
up stocks.
2. Costs – The biggest source of AMC income is generally from the entry &
exit load which they charge from investors, at the time of purchase. The
mutual fund industries are thus charging extra cost under layers of jargon.
26
3. Dilution - Because funds have small holdings across different companies,

high returns from a few investments often don't make much difference on
the overall return. Dilution is also the result of a successful fund getting too
big. When money pours into funds that have had strong success, the
manager often has trouble finding a good investment for all the new money.
4. Taxes - when making decisions, fund managers don't consider investor’s

personal tax situation. For example, when a fund manager sells a security, a
capital-gain tax is triggered, which affects how profitable the individual is
from the sale. It might have been more advantageous for the individual to
defer the capital gains liability.
HISTORY
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
the. the history of mutual funds in india can be broadly divided into four
distinct phases
First phase – 1964-87
Unit trust of India (uti) was established on 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.
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.
27
At the end of 1993, the mutual fund industry had assets under management
of rs.47, 004 crores.
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. 121,805crores. The unit trust of
india with rs.44, 541 crores of assets under management was way ahead of
other mutual funds.
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 ltd, 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
28
growth. as at the end of September, 2004, there were 29 funds, which

manage assets of rs.153108 crores under 421 schemes.
The graph indicates the growth of assets over the years
29
Analysis
Mutual funds also carry a risk profile with them. Some of the tools available
to assess a scheme’s riskiness are-
Beta
This common measure compares a mutual fund's volatility with that of a

benchmark and is supposed to give some sense of how far you can expect a
fund to fall when the market takes a dive, or how high it might climb if the
bull is running hard. A fund with a beta greater than 1 is considered more
volatile than the market; less than 1 means less volatile. So say your fund
gets a beta of 1.15 -- it has a history of fluctuating 15% more than the
benchmark If the market is up, the fund should outperform by 15%. If the
market heads lower, the fund should fall by 15% more.
But beta, though a useful guide, is far from perfect, especially when used as
a proxy for "risk." The problem here, as with many risk measures, is the
benchmark. The benchmark has to be a correct measure of comparison only
then will the beta hold any indicative value.
Alpha
Alpha was designed to take beta one step further. It looks at the relationship
between a fund's historical beta and its current performance, or the
difference between the return beta would lead you to expect and the return
a fund actually gets. An alpha of 0 simply means that the fund did as well as
expected, considering the risks it took. So if that fund with the beta of 1.15
beat the market by 15% (or underperformed it by 15% when the market
was down), it would have a 0 alpha. If your fund has a positive alpha, that
means it returned more than its beta predicted. A negative alpha means it
returned less. The trouble with alpha is that it's only as good as its beta. If
the benchmark isn't appropriate to a fund in deriving its beta, then alpha,
too, will be imprecise.
Standard Deviation
Standard deviation is applied to the annual rate of return of an investment

to measure the investment's volatility. Standard deviation is also known as
historical volatility and is used by investors as a gauge for the amount of
expected volatility.
Standard deviation is a statistical measurement that sheds light on historical
volatility. For example, a volatile stock will have a high standard deviation
30
while the deviation of a stable blue chip stock will be lower. A large
dispersion tells us how much the return on the fund is deviating from the
expected normal returns.
Sharpe Ratio
The Sharpe ratio tells us whether a portfolio's returns are due to smart
investment decisions or a result of excess risk. This measurement is very
useful because although one portfolio or fund can reap higher returns than
its peers, it is only a good investment if those higher returns do not come
with too much additional risk. The greater a portfolio's Sharpe ratio, the
better its risk-adjusted performance has been.
Treynor’s performance index :
A ratio developed by Jack Treynor that measures returns earned in excess of

that which could have been earned on a riskless investment per each unit of
market risks.
In other words, the Treynor ratio is a risk-adjusted measure of return based

on systematic risk. It is similar to the Sharpe ratio, with the difference being
that the Treynor ratio uses beta as the measurement of volatility. :
æR - R ö
ç P f ÷ø
Treynor = è
b
P
Where:
Ti = Treynor’s performance index
31
Rp = Portfolio’s actual return during a specified time period

Rf = Risk-free rate of return during the same period
βp = beta of the portfolio
Whenever Rp> Rf and βp > 0 a larger T value means a better portfolio for all
investors regardless of their individual risk preferences. In two cases we may
have a negative T value: when Rp < Rf or when βp < 0. If T is negative
because Rp < Rf, we judge the portfolio performance as very poor. However,
if the negativity of T comes from a negative beta, fund’s performance is
superb. Finally when Rp- Rf, and βp are both negative, T will be positive, but
in order to qualify the fund’s performance as good or bad we should see
whether Rp is above or below the security market line.
FURTHER SCOPE OF THE STUDY
The study will further try to-
1. Analyze a few fund/schemes.

2. Comparative analysis of different investment Options with Mutual
Funds
32
MARKET SURVEY
INTRODUCTION
In financial markets, “expectations” of the investors play a vital role. They

influence the price of the securities; the volume traded and determines quite
a lot of things in actual practice. These expectations’ of the investors are
influenced by their “perception” and humans generally relate perception to
action.
The objective of the survey was to categorize investors as being inclined

towards investment products based on certain characteristic such as sex,
age, occupation, annual income etc. In addition the time horizon of
investment and the the real need/purpose of investment were studied and
categorized based on the above demographic factors.
It was also intended to examine the different intrinsic factors of a mutual

fund scheme and different environmental forces that motivate a investor to
choose a particular mutual fund scheme.
RESEARCH METHODOLOGY
DESIGNING A QUESTIONAIRE
To understand the savings avenue preference, scheme preference, time

horizon for investment and objectives for investment in MFs, and to identify
the information sources influencing scheme selection, and the preferred
mode of communication, a questionnaire (ANNEXURE I) was designed and
the respondents were asked to rank their preferences on a ranking scale.
The ranks were ascertained by obtaining the weighted mean value of the
responses.
To identify the factors that influence the investors fund/scheme selection, 23

variables were identified through evidence from past research. Based on
theory, past research, and personal judgment, the factors that could
influence the investors in their selection of Mutual funds/schemes was first
grouped into 3 major groups – Fund/Scheme qualities, fund sponsor
qualities and the expected investor services. Then the 23 identified
variables were classified under the appropriate group as follows:
SCHEMES QUALITIES
1. Fund’s/Scheme’s performance record
33
2. Fund’s/Scheme’s brand name

3. Scheme’s expense ratio
4. Scheme’s portfolio constituents
5. Reputation of scheme(s), portfolio manager(s)
6. Withdrawal facilities
7. Rating by a rating agency
8. Innovativeness of the Scheme
9. Products with tax benefits
10.Entry and Exit load
FUND SPONSOR’S QUALITIES

1. Reputation of the sponsoring firm
2. Sponsor offers a wide range of schemes with different investment
objectives
3. Brand name of Sponsor
4. Sponsor has a well developed Agency Net work/Infrastructure
5. Sponsor has an efficient research wing
6. Sponsor’s expertise in managing money
INVESTOR SERVICES
1. Disclosure of investment objectives, method and periodicity of
valuation in advertisement
2. Disclosure of method, periodicity of scheme’s sales and repurchase in
offer documents
3. Announcement of NAV on every trading day
4. Disclosure of deviation of the investments from the expected pattern
5. Disclosure of scheme’s investments on every trading day
6. Mutual Fund Investors’ grievance redressal machinery_
7. Additional Services like free insurance, free credit card, loans on
collateral, tax benefits etc
In the survey, the respondents were asked to rate the importance of the 23
specified variables on a 5 point scale ranging from Highly Important (1) to
Not at all Important (5). The data for each of the 3 sub -groups were factor
analyzed using Principal Component Analysis with the objective of identifying
the factor in the sub -group which turns out to be significant in the
fund/scheme selection.
34
SAMPLE SELECTION
Survey was conducted on 50 existing investors of Mahindra finance and 50

more who were planning to invest into various schemes through Mahindra
Finance. The survey was conducted during March – April 2009. The required
data was collected through a pre-tested questionnaire which was
administered through different techniques i.e.- through telephone, emails,
direct and interviewer administered.
Profile of Investors, distribution of the present investors by demographic
factors is given below.
TABLE Distribution of retail mutual fund investors by demographic

factors
INVESTOR PROFILE NO OF RESPONDENTS
SEX
Male 78
Female 22
AGE
Below 30 14
31-40 36
41-50 30
Above 50 20
MARITAL STATUS
Married 58
Unmarried 42
OCCUPATION
Salaried 60
Business 26
Retired 14
ANNUAL INCOME (Rs)
Below 150000 14
150000 – 300000 54
300000 – 400000 14
Above 400000 18
ANNUAL SAVINGS (Rs)
Below 50000 39
50000 – 100000 24
100000 – 150000 10
150000 – 250000 12
Above 250000 15
35
Age Distribution in Sample
A majority of the sample were from the 31-40 age group followed by the 41-
50 age group (30%). The sample contained a minimum number of investors
in the below 0 age group.
Above
50
Age Distribution Below
20% 30
14%
31-40
41-50 36%
30%
Occupational Distribution in Sample
A majority of the people surveyed were from the salaried class (60%). The
business class (26%) also includes those people who are self employed.
Occupational Distribution
Retired
14% Busines Salaried
s 60%
26%
Annual Income Distribution in Sample
Most of the people surveyed belonged to the 150000 to 300000 annual

income category.
Above Annual Income Below

400000
150000
18%
14%
300000 -
400000
14%
150000 -
300000
54%
36
Disposable Income Distribution in Sample
More than 39% of people save below 50000 a year whereas only 15 %of
people save more than 250000 a year.
Disposable Income Distribution

Above 250000
15%
150000 -
250000 Below 50000
12% 39%
50000 - 100000
100000 - 24%
150000
10%
Investment type Distribution in Sample
Maximum no of people invest their money in providend funds. This is

followed by the Mutual funds category. This can be attributed to the fact that
a majority of the sample were salaried employees.
Investment Type Distribution

Postal Savings
14%
Stocks
Life Insurance
24%
10%
Bank
Deposits
4%
MF PPF
22% 26%
37
Annual Income Vs Annual Savings
Income vs Savings
100
80
Percent
60
40
Above 400000
20
300000 - 400000
0 150000 - 300000
Below Below 150000
50000 -
50000 100000 -
100000 150000 -
150000 Above
250000
250000
Savings
Below 50000 50000 - 100000 100000 - 150000 150000 - 250000 Above 250000
Below 150000 100 0 0 0 0
150000 - 300000 88 9 3 0 0
300000 - 400000 30 47 15 8 0
Above 400000 12 18 25 28 17
Almost 100% of the people in the salary class of below 150000 save less
than 50000 a year. This is attributed to the fact that this slab is tax free.
People in the salary class of 1,50,000 to 3,00,000 mostly invest below
50,000. The income slab of 3,00,000 invest maximum 50,000 to 1,00,000
yearly. The maximum no of people who invest more than 2,50,000 a year
lies in the above 4,00,000 category income slab.
38
Age VS Investment Type
Age Vs Investment Type
45
40
35
30
Percent
25
20
15
10 Above 50
5
0 40-50
30-40
Below 30
Stocks PPF MF Bank Deposits Life Insurance Postal Savings

Below 30 14 29 14 0 43 0
30-40 24 24 36 0 16 0
40-50 29 29 18 0 0 24
Above 50 22 22 19 15 0 22
It can be inferred from the readings that young people invest mostly in life
insurance schemes whereas the age group of 30-40 and 40-50 invest their
money mostly in mutual funds and stocks.
Risk averse young people also invest in PPFs. They hardly go for bank
deposits and postal savings etc.
Postal savings and bank deposits fare well in case of old investors as can be
seen from the chart.
39
Age Vs Time Horizon
Age VS Time Horizon
50
45
40
35
30
%
25
20
15 Above 50
10 40-50
5
0 30-40
Below 1 Below 30
Year 1-3 Years
3-5 Years
5 above
Time of Deposit
Below 1 Year 1-3 Years 3-5 Years 5 above

Below 30 25 50 25 0
30-40 29 29 43 0
40-50 38 38 23 0
Above 50 29 29 24 19
The below 30 age group prefer a time horizon of mostly 1-3 years(50%) and
rest of them prefer the below one year and the 3-5 yrs schemes equally. The
age group of 50 above prefers the 5 yrs time horizon more than the other
age groups.
40
The study shall further include the comparative analysis of other

demographic factors (Income, Occupation and Gender) with types and
horizon of investment.
1. Income VS Type of Investment

2. Income VS Horizon of Investment
3. Occupation VS Type of Investment
4. Occupation VS Horizon of Investment
5. Gender VS Type of Investment
6. Gender VS Horizon of Investment
41
FACTORS AFFECTING SCHEME SELECTION IN MUTUAL FUNDS
Ranking of the Investment Objective in Sample
OBJECTIVE RANK
Safety 1
Liquidity 4
Tax Benefit 3
Dividend 2
Capital Appreciation 5
The investors look for safety first in MF products, followed by good returns,
Tax Benefits, liquidity and capital appreciation. The survey further reveals
that the scheme selection decision is made by respondents on their own, and
the other sources influencing their selection decision are News papers and
Magazines, Brokers and Agents, Television, Friends suggestions and Direct
Mail in that order Preferable Route to Mutual Fund Investing as indicated
below.
ROUTE RANK
Friends Suggestions 5
Newspaper/Magazines 2
Self Decision 1
Television 4
Brokers/Agents 3
Email/Direct mail 6
Since the survey reveals priority to “Self decision in scheme selection.

Information dissemination through all possible routes which will reach the
investors should be tapped in a cost-effective manner by AMCs.
Diagnostically looking, the fact that the investors prefer to make their own
scheme selection decision, in spite of their lack of knowledge about the
sophisticated market environment, reflects their reluctance to believe the
available quality of service provided by the agents, financial consultants and
investment advisers. These agencies and persons engaged in giving
investment advice should gear up now to win the confidence of the
investors. In the long run, it will help both the investors and the investment
advisers, thus strengthening the link between the individual investors and
the Mutual Funds.
Scheme Preference of Mutual Fund Investors
42
SCHEME RANK
Growth 1
Income 2
Balanced 3
Although it has been observed that safety is the number one motive behind
investment in any mutual funds, the effect of demographics cannot be
neglected while observing the scheme selection behavior of Mutual Fund
investors. Thus this study will further include a analysis of the perception of
different individuals belonging to different demographics on various
objectives of investment offered by mutual funds (Tax benefit, Dividend,
Safety, Capital Appreciation, Liquidity). This will help in finding out what
product to offer to which type of individual.
43
Influence of Product Qualities

on Scheme Selection
OBSERVATION
The 10 fund related variables were analyzed for their importance. The
analysis reveals that the investor considers all the 10 variables as important
in his selection of the fund/scheme. The mean values of the readings were
obtained and the factors were ranked according to their importance.
VARIABLES RANKING
Scheme’s Performance Records 1
Schemes Brand Name 2
Portfolio of Investment 3
Withdrawal facility 4
Reputation of Schemes Managers 5
Products with Tax Benefits 6
Ratings 7
Entry and Exit Load 8
Expense Ratio 9
Innovativeness of Scheme 10
To identify the investor’s underlying fund/scheme selection criteria, so as to

group them into specific market segment to enable the designing of the
appropriate marketing strategy, Factor Analysis was done using Principal
Component Analysis. The readings obtained are given below.
COMMUNALITIES INITIAL EIGEN VALUES

Eigen % of
Variable Initial Extraction Factor Value variance Cumulative
A1 1 0.438 1 2.327 23.268 23.268
A2 1 0.798 2 1.265 12.653 35.921
A3 1 0.248 3 1.086 10.861 46.782
A4 1 0.675 4 0.971 9.71 56.492
A5 1 0.409 5 0.931 9.307 65.799
A6 1 0.371 6 0.87 8.701 74.5
A7 1 0.352 7 0.71 7.098 81.598
A8 1 0.359 8 0.693 6.93 88.528
A9 1 0.593 9 0.61 6.098 94.626
A10 1 0.435 10 0.537 5.374 100
44
Extraction Method- Principal Component Analysis
FACTOR MATRIX ROTATED FACTOR MATRIX

Variable Factor 1 Factor 2 Factor 3 Factor 1 Factor 2 Factor 3
A1 0.316 0.429 -0.392 6.19E-02 0.641 -0.513
A2 0.234 0.194 0.84 2.40E-02 -5.79E-02 0.891
A3 0.416 0.272 -2.56E-02 0.202 0.423 0.166
A4 0.354 0.7 -0.245 -6.48E-02 0.816 6.91E-02
A5 0.542 0.25 0.229 0.299 0.369 0.428
A6 0.468 -0.389 -1.91E-02 0.604 -7.63E-02 -1.17E-03
A7 0.551 -0.199 9.14E-02 0.562 7.09E-02 0.177
A8 0.589 -0.102 4.76E-02 0.554 0.182 0.174
A9 0.54 -0.446 -0.32 0.719 2.88E-02 -0.275
A10 0.646 -0.131 7.13E-03 0.661 0.202 0.144
Total variance Explained
EXTRACTION SUM OF ROTATIONAL SUM OF

SQUARED LOADINGS SQUARED LOADINGS
Eigen % of Eigen % of
Factor Value variance Cumulative Value variance Cumulative
1 2.327 23.268 23.268 2.006 20.059 20.059
2 1.265 12.653 35.921 1.481 14.809 34.868
3 1.086 10.861 46.782 1.191 11.914 46.782
Component and Rotated Component Matrix
Rotation Method- Varimax with Kaiser Normalization
INFERENCE
Retaining only the variables with eigen values greater than one, we can infer
that 23.268% of variance is explained by factor 1; 12.653% of variance is
explained by factor 2 and 10.861% of variance is explained by factor 3 and
together, all three factors contributed to 46.782% of variance.
On the basis of Varimax Rotation with Kaiser Normalization, 3 factors have

emerged. Each factor is constituted of all those variables that have factor
loadings greater than or equal to 0.5. Thus A6, A7, A8, A9 and A10
constituted the first factor. This factor was named as “Intrinsic Product
Qualities”; A1 and A4 constituted the second factor and this was
conceptualized as “Portfolio Management”; A2 constituted the 3rd factor and
was conceptualized as “Image” factor.
45
Thus, after rotation, factor 1 (Intrinsic Product Qualities) accounts for

20.059% of the variance; factor 2 (Portfolio Management) accounts for
14.809% of variance and factor 3 (Image) accounts for 11.914% of var iance
and all 3 factors together explain for 46.782% of variance.
CLUBBING OF FACTORS INTO VARIABLES
FACTOR NAME VARIABLE

Intrinsic Qualities of the Withdrawal Facilities
Product Rating by a rating agency
Innovativeness of Scheme
Tax benefits
Portfolio Management Performance Record

Investment Portfolio
Image Reputation of Brand name
The six sponsor related variables are to be analyzed for their importance
using Factor Analysis.
The Seven Investors Services related variables are also to be analyzed for
their importance using Factor Analysis.
46
ANNEXURE 1
This survey is for the sole purpose of collecting data for a survey carried out by the ICFAI
Business School Management students for internship thesis. Information in this survey
would not be disclosed for any other purpose. We are very much grateful to you for your
cooperation and time.
NAME______________________________________________
Email Id_________________________________________ Mobile_____________________
Please tick mark
I.SEX: Male Female
II.AGE: Below 30 30 – 40 40 - 50 50 and above
III.INCOME:< 150000 150000-30000 300000-400000 4000000<
IV. OCCUPATION Salaried Businessman Retired
Please fill in
SAVINGS = Rs ____________ / Year
What % of your savings are invested for 5 years and above __________________ (approx.)
What % of your savings are invested for 3-5 years__________________ (approx.)
What % of your savings are invested for 1-3 years___________________ (approx)
What % of your savings are invested for less than one year________________ (approx)
Please rank the choices according to your preferences as indicated in example.

Give Rank 1 to the most preferred option.
Give Rank 2 to the next best option and so on.
EXAMPLE: What season do you like most?

Rainy 3 Winter 1 Summer 2
In which schemes have you invested most till date? (Rank 1-6)
Mutual Funds Postal Savings

Fixed Deposits Stocks
Life Insurance Provident Funds
What were the most important factors while selecting a mutual fund scheme? (Rank 1 to 6)
Tax Benefit Dividend Safety

Capital Appreciation Liquidity
47
Which environmental forces influenced you the most to invest in mutual fund? Rank in order of
preference from 1 to 6.
Friends Suggestions
Newspapers / Magazines
Television and commercials
Brokers and Agents
Self evaluation and decision
Direct mail / E mail
Which mode of communication do you prefer most for receiving updates and performance of your
scheme / portfolio of mutual fund investment? Rank 1 to 4.
Telephone
E mail / Internet
Direct mail
Personal contact / visit.
GIVE MARKS OUT OF 5 TO EACH OF THE ATTRIBUTES FOR THEIR IMPORTANC E

WHILE MAKING A INVESTMENT DECISION. Please Refer Example.
Give: 1 for Highly Important Factor Please feel free to leave any
Give: 2 for Important question that you can’t understand
Give: 3 for Moderately Important Unmarked
Give: 4 for Less Important
Give: 5 for Not at all Important.
3
EXAMPLE: Grade Funds Popularity? ________________________
SL NO. SCHEMES QUALITIES MARKS
A1 Fund’s/Scheme’s performance record_______________
A2 Fund’s/Scheme’s brand name_____________________
A3 Scheme’s expense ratio__________________________
A4 Scheme’s portfolio constituents____________________
A5 Reputation of scheme(s), portfolio manager(s)________
A6 Withdrawal facilities____________________________
48
A7 Rating by a rating agency________________________
A8 Innovativeness of the Scheme_____________________
A9 Products with tax benefits________________________
A10 Entry and Exit load_____________________________
SL NO. MARKS
FUND SPONSOR’S QUALITIES
B1 Reputation of the sponsoring firm_________________
B2 Sponsor offers a wide range of schemes with different investment

objectives___________________________
B3 Brand name of Sponsor__________ ______________
B4 Sponsor has a well developed Agency Net

work/Infrastructure_____________________________
B5 Sponsor has an efficient research wing______________
B6 Sponsor’s expertise in managing money_____________
SL NO. MARKS
INVESTOR SERVICES
C1 Disclosure of investment objectives, method and

periodicity of valuation in advertisement____________
C2 Disclosure of method, periodicity of scheme’s sales and

repurchase in offer documents_____________________
C3 Announcement of NAV on every trading day____________
49
C4 Disclosure of deviation of the investments from the expected

pattern_________________________________
C5 Disclosure of scheme’s investments on every trading

day__________________________________________
C6 Mutual Fund Investors’ grievance redressal machinery_
C7 Additional Services like free insurance, free credit card, loans on

collateral, tax benefits etc.________________
50
REFERENCES
1. www.moneycontrol.com
2. www.amfiindia.com
3. www.wikepedia.com
4. Shanmugham, R., 2000, “Factors Influencing Investment Decisions”,

Indian Capital Markets – Trends and Dimensions (ed.), Tata McGraw-Hill
PublishingCompany Limited, New Delhi, 2000
5. Anjan Chakrabarti and Harsh Rungta, 2000, “Mutual Funds Industry in

India :An in-depth look into the problems of credibility, Risk and Brand”,
The ICFAI Journal of Applied Finance, Vol.6, No.2, April, 27-45.
6. Customer Orientation in Designing Mutual Fund Products, -An Analytical

Approach to Indian Market Preferences, Dr Tapan K Panda, Faculty
Member, Indian Institute of Management, Lucknow.
7. Review Of Marketing Research Volume 5: K. Naresh Malhotra:
51
THANK YOU
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FACTORS AFFECTING INVESTORS PREFERENCE FOR MUTUAL FUNDS IN INDIA

· To categorize investors as being inclined towards investment products

Mahindra and Mahindra Financial Services Limited is one of India’s leading

• Credit Rating Information Services Limited (CRISIL) has reviewed the

Products & Services

• It provides financial loans to tractors, utility vehicles, light commercial

• Its services include Mutual Fund distributions and financial advisory

• In May 2004, as a supplement to its lending business it started an

• It believes that the growth of their interactive, people-driven business

MAHINDRA FINANCE - FINSMART: INVESTMENT ADVISORY

• It provides financial planning solutions to customers by which they can

• And as in today’s scenario Mutual Funds is the best available investment

An investment can be described as perfect if it satisfies all the needs of all

The Investment Needs of an Investor

· Security of original capital: The chance of losing some capital has

· Wealth accumulation: This is largely a factor of investment

· Comfort factor: This refers to the peace of mind associated with an

· Tax efficiency: Legitimate reduction in the amount of tax payable is

· Income: This refers to money distributed at intervals by an

· Simplicity: Investment instruments are complex, but investors need

ownership. It is normally triggered by a need to spend capital, change

· Communication: This refers to informing and educating investors

· Security of original capital is more important when performance falls.

Perfect investment would have been achieved if all the above-mentioned

Choosing the Right Investment Options

After understanding the concept of investment, the investors would like to

Investment Options in India

Government Bonds – The Central and State Governments raise money

Money-back insurance - Insurance in India is mostly sold and bought as

Endowment Insurance – These policies are term policies. Investors have

Mutual Funds - There is a collection of investors in Mutual funds that have

With the plethora of schemes available in the Indian markets, an investors

Most importantly, mutual funds provide risk diversification: diversification of

Definition- A Mutual Fund is a trust that pools the savings of a number of

Mutual Fund Operation Flow Chart

Many Investors with common financial objectives pool their money

ORGANISATION OF A MUTUAL FUND

Terms associated with a Mutual Fund

across countries. Issuer credit rating measures the creditworthiness of the

To protect the interest of the investors, SEBI formulates policies and

SEBI approved Asset Management Company (AMC) manages the funds by

According to SEBI Regulations, two thirds of the directors of Trustee

The Association of Mutual Funds in India (AMFI) reassures the investors in

AMFI also is engaged in upgrading professional standards and in promoting

TYPES OF MUTUAL FUND SCHEMES

1. Open - Ended Schemes:

2. Close - Ended Schemes:

A closed-end fund has a stipulated maturity period which generally ranging

Balanced Schemes: Balanced Schemes aim to provide both growth and

Money Market Schemes: Money Market Schemes aim to provide easy

Thus investors choose mutual funds as their primary means of investing, as

· Diversified Equity Funds.

The objective of these Funds is to invest in debt papers. Government

Gilt Funds: Invest their corpus in securities issued by Government,

Income is earned from dividends on stocks and interest on bonds. A fund

Advantages of Investing Mutual Funds :

1. Professional Management - The basic advantage of funds is that, they

2. Diversification of Risk - Purchasing units in a mutual fund instead of

3. Economies of Scale - Mutual fund buy and sell large amounts of

5. Simplicity - Investments in mutual fund is considered to be easy,

6 Safety of Investments-Besides depending on the expert supervision of

7. Tax Shelter: Depending on the scheme of mutual funds, tax shelter is

Close ended schemes ELSS schemes with a minimum of 3 years lock in