Greater Noida
SUBMITTED BY:PremchandraJha
Roll No.- 1409070007
MBA 2nd yr
2014-16
TABLE OF CONTENTS
TABLE OF CONTENTS
ACKNOWLEDGEMENT
EXECUTIVE SUMMARY
CHAPTER 1: INTRODUCTION
1.1 Company Profile
1.2 Project Brief/Objective
1.3 Value Addition
1.4 Limitations
1.5 Steps Taken to overcome the limitations
CHAPTER 2: CONCEPTUAL FRAMWORK
2.1
2.2
Mutual Funds
mutual Fund industry
2.3
Journey So Far
2.4
2.5
2.6
2.7
2.8
2.9
ACKNOWLEDGMENT
EXCUTIVE SUMMARY
4
During my training period under the guidance of my Mahindra Finance guide I have tried to
understand the working environment of the company along with working of an AMC and look into
its operations. Through working at the branch office for the past six 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.
Further more working on my project simultaneously, Project aims at Market study of
behavioral approach of consumer toward mutual fund industry. Market study involves the complete
study products like Mutual Fund, SIP, Ulips and Gold schemes etc. This will be done through
training given to me by Mahindra Finance, reference material provided by company, magazines,
books, newspapers and web sites. I reached to the various customers with the help of a
questionnaire and even some contacts are provided through companys database. There responses
are analyzed with the help of Microsoft Excel and Chi Square test is also performed and the results
are matched with Null Hypothesis
Working as the marketer I am dealing with Mutual Fund of various AMCs like HSBC,
DSP MERRIL LYNCH,
MAHINDRA FINANCE,
RELIANCE,
UTI,
FRANKLIN
TEMPLETON, FIDELITY, ICICI, HDFC, BIRLA SUN LIFE etc. Complete understanding of
their funds dealt during training. In studying the
Consumer behavior my prime focus will be on Mutual Fund and sale of mutual fund.
The result of Chi square test comes out to be in supportive of Null Hypothesis that is Hypothesis H0 there is significant difference in the perception of the Customers about the KOTAK
schemes and the way it is projected by the Company Itself.
Further more the recommendations from investors point of view and for the company are
suggested and these are well accepted by company guide.
CHAPTER 1
INTRODUCTION
1.1 Company Profile
Mahindra & Mahindra Limited
A. Brief History :
Mahindra & Mahindra Limited (M&M) is the flagship company of around US $ 2.5 bn
Mahindra
Group, which has a significant presence in key sectors of the Indian economy. A consistently high
performer, M&M is one of the most respected companies in the country. Set up in 1945 to make
general-purpose utility vehicles for the Indian market, M&M soon branched out into manufacturing
agricultural tractors and light commercial vehicles (LCVs). The company later expanded its
operations from automobiles and tractors to secure a significant presence in many more important
sectors. The Company has, over the years, transformed itself into a Group that caters to the Indian and
overseas markets with a presence in vehicles, farm equipment, information technology, trade and
finance related services, and infrastructure development.
M&M has two main operating divisions:
The Automotive Division manufactures utility vehicles, light commercial vehicles and three
wheelers. The Tractor (Farm Equipment) Division makes agricultural tractors and implements that are
used in conjunction with tractors, and has also ventured into manufacturing of industrial engines. The
Tractor Division has won the coveted Deming Application Prize 2003, making it the only tractor
Manufacturing company in the world to secure this prize.
The resurgence of the automotive industry and M&Ms success in exploiting it, has created an
Opportunity to strengthen the company through an entry into the Auto Components business, the
Growth of which is being fuelled by both, domestic and export demand.
M&M employs around 11,500 people and has six state-of-the-art manufacturing facilities
spread over 500,000 square meters. M&M has also set up two satellite plants for tractor assembly. It
has 49 sales offices that are supported by a network of over 780 dealers across the country. This
network is
Connected to the Company's sales departments by an extensive IT infrastructure.
M&M's outstanding manufacturing and engineering skills allow it to constantly innovate and
launch new products for the Indian market. The Company's significant recent product launch, the
"Scorpio, resulted in the Company winning the National Award for outstanding in-house research
and
Development from the Department of Science and Industry of the Government in 2003. The
Company
has launched Indias first tractor with turbo technology the Mahindra Sarpanch 595 DI Super Turbo.
The Company's commitment to technology-driven innovation is reflected in Company's plans of
setting up of the Mahindra Research Valley, a facility that will house the Company's engineering
research and product development wings, under one roof.
The M&M philosophy of growth is centred on its belief in people. As a result, the company
has put in place initiatives that seek to reward and retain the best talent in the industry. M&M is also
known
for its progressive labour management practices. In the community development sphere, the company
has implemented several programs that have benefited the people and institutions in its areas of
operations.
B. Board of Directors
The Board of Directors comprises seventeen members and has a mix of executive and nonexecutive directors. A majority of the directors on the Board are non-executive directors. The
Company's Board of Directors as on 31st December, 2004 is as follows:
Mr.Keshub Mahindra Chairman
Mr.Anand G. Mahindra Vice-Chairman & Managing Director
Mr. R. K. Pitamber
Mr. Deepak S. Parekh
Mr. Nadir B. Godrej
Mr. M. M. Murugappan
Mr. David Friedman
Mr. V. K. Chanana Nominee of Unit Trust of India
Mr. R. N. Bhardwaj Nominee of Life Insurance Corporation of India
Mr. K.J. Davasia Executive Director
Mr. Bharat Doshi Executive Director
Mr. Alan E Durante Executive Director
OBJECTIVES OF MMFSL
MMFSL is a focused automotive and equipment Hire Purchase and Leasing Company. It
finances dealers of M&M, their customers and small businesses by extending short term finance as
well as Lease and Hire Purchase Finance. With the onset of boom in the automotive business and
general growth in the economy as a sequel to liberalized government policies, MMFSL can play a
much bigger role in meeting the requirement of small businesses, small transport companies and
agriculturists
With effect from 7th April, 2004 Mahindra Insurance Brokers Ltd. (previously known as Mahindra
Allied Investments Ltd.) Has become subsidy of the company carrying on the business of direct
Insurance broking.
Mutual Fund Distribution
Recently it has received the necessary permission from Reserve Bank of India (RBI) to start
the distribution of Mutual Fund products through its network. Hitherto the company was only
participating in the liability requirements of its customers and with mutual fund distribution business;
it can also participate in their asset allocation.
When it comes to investing everyone has unique needs based on their own objective and risk profile.
Even though many investment avenues such as fixed deposit, bonds etc. exists, equities typically
outperform these investments, over a longer period of time. We are of the opinion that, systematic
investment in equity will allow you to create Wealth.
Hence only through proper allocation of your portfolio, you can get the maximum return with
moderate risk. Investing in equity is not as straight forward as investing in bonds or bank deposits. It
requires expertise and time. Our Investment Advisory services will help you to invest your money in
equity through different Mutual Fund Schemes. For instance there are some products of Mutual Fund,
which allows you to manage your cash flow by providing liquidity (liquid Funds) as well give you tax
free return.
10
Insight into Customer Perception: The project will help Mahindra Finance in identifying the key
factors influencing investor decisions.
Mahindra Finance might introduce new product catering to a sub segment in the market, based
on competitor product success.
Additional Sales: In the whole learning process, there will be additional sale of Mahindra
Finance investment products, thus contributing to their top line as well as bottom line.
1.4 Limitations
There are few challenges associated with achieving the desired objectives of the project. These
challenges are due to some limitations. Some of the associated challenges and limitations are:
1. Lack of access to data due to constrains of data sharing. As per the company policy, it is not
allowed to share their data with non-authorized people. I will be collecting all the necessary
information on my own which might not be up to the level of information given by
Mahindra data.
2. Lack of co-operation from the employees: employees will not be able to give full
cooperation because of their work schedules. Source of getting the expert opinion will be
lacking.
3. Time Constraint: As there are lots of investment product available, performance evaluation
of all these in such a short span is not possible.
4. Selective Study: 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
11
Collected the data/information vetted by Project guide at Mahindra and other publicly
available sources of data.
2. Tried to seek assistance on personal level and refer to industry sources for expert
opinions.
12
CHAPTER 2
CONCEPTUAL FRAMWORK
2.1
Mutual Funds
CONCEPT
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned through
these investments and the capital appreciations realized 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.
A mutual fund is a financial intermediary that pools the savings of investors for
collective investment in a diversified portfolio of securities. A fund is mutual as all of its
returns, minus its expenses, are shared by fund investor.
The Securities and Exchange Board of India (mutual fund) regulations, 1996 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.
According 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 Act. The
definition has been further extended by allowing mutual fund to diversify their activities in
the following areas:
A mutual fund serves as a link between the investor and the securities market by mobilizing
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. Although both are
conceptually same, they are different from each other. Portfolio management services are
offered to high net worth individuals; 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 investors/unit-holders.
Mutual fund is a collective savings schemes. Mutual funds play an important role in
mobilizing the savings of small investors and channel sing same for productive ventures in
the Indian economy.
A mutual fund is a corporation (trust) 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 MF serves as a link between the public and the capital markets so
as to mobilize 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 Mutual Fund.
A Mutual Fund is an investment tool that allows small investors access to
well-diversified portfolio of equities, bonds and other securities. Each shareholder
participates in the gain or loss of the fund. Units are issued and can be redeemed as needed.
The fund's Net Asset Value (NAV) is determined each day.
Mutual Funds are financial intermediaries. They are companies set up to receive your
money, and then having received it, make investments with the money Via an AMC. It is an
ideal tool for people who want to invest but don't want to be bothered with deciphering the
numbers and deciding whether the stock is a good buy or not. A mutual fund manager
proceeds to buy a number of stocks from various markets and industries. Depending on the
amount you invest, you own part of the overall fund.
14
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 equity markets or have a
steady and comparatively secure investment as offered by debt instruments.
The flow chart below describes broadly the working of a mutual fund:
Fig-1 working of mutual fund
15
it has to satisfy certain conditions, such as on capital and profits, track record (at least five years in
financial services), default-free dealings and a general reputation for fairness. The sponsor must have
been profit making in at least 3 years of the above 5 years.
The Sponsor appoints the Trustees, Custodian and the AMC with the prior approval of SEBI and in
accordance with SEBI Regulations.
Like the company promoter, the sponsor takes big-picture decisions related to the mutual fund,
leaving money management and other such nitty-gritty to the other constituents, whom it appoints.
16
The sponsor should inspire confidence in you as a money manager and, preferably, be profitable.
Financial muscle, so long as it is complemented by good fund management, helps, as money is then
not an impediment for the mutual fund- 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
UTI. Now that assured return schemes are passed, such bailouts wont be required. All things
considered, choose sponsors who are good money managers, who have a reputation for fair business
practices and who have deep pockets
TRUST
The Mutual Fund is constituted as a Trust in accordance with the provisions of the Indian Trusts Act,
1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908. 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, SEBI rules mandate that at least two-thirds of
the trustees be independent, i.e., not have any association with the sponsor.
Trustees appoint the AMC, which subsequently, 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 AMCs investments are within defined limits and whether the
17
funds assets are protected. Trustees can be held accountable for financial irregularities in the
mutual fund.
Unit
A unit in a mutual fund scheme means one share in the assets of a particular scheme. So, a person
holding units in a scheme is referred to as a unit holder.
18
CUSTODIAN
A 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 acquisition. 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. For example, Deutsche Bank is a custodian, but it cannot
service Deutsche Mutual Fund, its mutual fund arm.
TRANSFER AGENTS
Registrars, 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. Some fund
houses handle such functions in-house. Others outsource it to the Registrars; Karvy and CAMS are
the more popular ones. It doesnt really matter which model Some of the investor related services
are:-
19
20
investing coupled with a benign interest rate regime have helped mutual funds gain popularity with
investors. Finally, a slew of regulatory measures taken by SEBI have played a crucial role in instilling
confidence among investors, especially
retail investors. No doubt these factors
have attributed significantly to the
growth of the mutual fund industry in the
country, particularly in recent times.
Further, 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 Morgan Stanley, Principal, Sunlife, and Fidelity, while Vanguard is mulling over its India
debut, augurs well for the industry as not only these global investment management firms bring with
them the expertise 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 US and the UK.
A host of things suggests that the industry is all set to enter a period of high growth. A 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 industrys future is bright. However, to gain size, and catch up
with developed markets like the US, the industry has to remove certain obstacles which pose
significant challenges.
21
which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI
were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin
Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual
Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations
in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number
of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India
and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003,
there were 33 mutual funds with total assets of Rs.1,21,805crores. The Unit Trust of India with
Rs.44,541crores of assets under management was way ahead of other mutual funds.
23
According to Ownership
1. Public Sector Mutual Funds
2. Private Sector Mutual Funds
24
1. Open-Ended Schemes.
2. Close-Ended Schemes
According to Portfolio
1.
Income funds
2. Growth Funds
3. Balanced or Conservative Funds
4. Stock/Equity Funds
5. Bond Funds
6. Specialized Funds
7. Taxation Funds
8. Money Market Mutual Funds
According to Location
1. Domestic Funds
2. Off-shore Funds
25
1. Loan Funds
2. Non-Loan Funds
A. ACCORDING TO OWNERSHIP
According to ownership, mutual funds in India may be classified as Public Sector Mutual Funds and
Private Sector Mutual Funds.
PUBLIC SECTOR MUTUAL FUNDS
UTI has been functioning in the arena of Mutual-Fund-Business in India since 1963-64.
However, it was only after 23years, in 1987 that second mutual fund was established in India by the
State Bank of India. Although UTI was functioning successfully, it was found inadequate to meet the
requirements of small and medium household sectors. Thus, UTIs monopoly in Mutual Fund
Business was curtailed by the central Government by opening the operation of Mutual Funds to the
Public-Sector Commercial Banks in 1987, in order to meet the requirements of the common
investors.
26
27
on the stock exchanges where they are listed. Unlike open-ended schemes, the unit capital in closedended schemes usually remains unchanged. After an initial closed period, the scheme may offer direct
repurchase facility to the investors. Closed-ended schemes are usually more illiquid as compared to
open-ended schemes and hence trade at a discount to the NAV. This discount tends towards the NAV
closer to the maturity date of the scheme.
C. ACCORDING TO PORTFOLIO
Mutual funds can also be classified according to portfolio or the objectives of the fund. Some of
these funds are Income funds, Growth funds, Balanced or Conservative funds, Stock/Equity funds,
Bond funds, specialized funds, Leverage funds, Taxation funds, Money Market Mutual Funds.
28
INCOME FUNDS
These funds aim at providing maximum current return to the investors. The investments are
made in stocks yielding higher returns and capital appreciation is of small importance. Such funds
distribute the income earned by them periodically amongst the investors.
GROWTH FUNDS
These funds aim at providing capital appreciation in the value of investments. Such funds invest
in growth oriented securities which have a potential to appreciate in long run. These funds
concentrate on value appreciation of securities and not on the regularity of income and are also
known as Nest eggs or Long haul investments. However, the risk involved in such funds is higher
than the income funds.
BALANCED FUNDS
Balanced 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 Conservative Funds or Income and Growth Funds.
STOCK/EQUITY FUNDS
These funds mainly invest in shares of the companies. The investments may vary from blue
chip companies to newly established companies. They undertake risk associated with investment in
equity shares of companies. Stock funds may have further sub-divisions such as income funds and
growth funds. A special type of equity fund is also known as index fund or never beat market fund.
29
BOND FUNDS
These funds employ their resources in bonds. These investments ensure fixed and regular
income. Some companies offer non-convertible 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.
SPECIALISED FUNDS
These funds invest in a particular type of securities. The funds may specialize in securities of
companies dealing in a particular product, firms in a particular industry or of certain income
producing securities. Any investor wanting to invest in a particular security will prefer a fund dealing
in such securities.
30
TAXATION FUNDS
Investors (individuals and Hindu Undivided Families (HUFs)) are being encouraged to
invest in equity markets through Equity Linked Savings Scheme (ELSS) by offering them a tax
rebate. Units purchased cannot be assigned / transferred/ pledged / redeemed / switched out until
completion of 3 years from the date of allotment of the respective Units. The Scheme is subject to
Securities & Exchange Board of India (Mutual Funds) Regulations, 1996 and the notifications issued
by the Ministry of Finance (Department of Economic Affairs), Government of India regarding ELSS.
Subject to such conditions and limitations, as prescribed under Section 88 of the Income-tax Act,
1961, subscriptions to the Units not exceeding Rs.10, 000 would be eligible to a deduction, from
income tax, of an amount equal to 20% of the amount subscribed.
D. CCORDING TO LOCATION
Mutual fund can also be classified on the basis of location from where they mobilize funds, as
Domestic Funds and Off-shore Funds.
DOMESTIC FUNDS
31
These are the funds, which mobilize savings of people within the country where investments
are made.
FOREIGN FUNDS
These are the funds, which raise or mobilize the savings in countries other than where investments
are to be made. These funds attract foreign savings for investment in India.
The premium or discount isnt constant, but usually fluctuates with market conditions. A fund
trading at a discount may rise to a steep premium or vice versa, as investors perceptions of the
market changes.
32
The majority of CEFs are bond funds; next in importance to world equity funds. CEFs are
most useful for buying assets that are infrequently traded or hard to price. Thus, very few CEFs
specialize in U.S. equities.
Generally, CEFs are not as highly marketable as many exchanged-traded stocks and one
should use limit as opposed to market orders.
Loads
Load is a charge collected by a mutual fund when it sells units. It can be levied as an entry
load (i.e., the charge is collected when an investor buys the units) and as an exit load (i.e., the charge
is collected when the investor sells back the units). Schemes that do not charge any load and are
called No Load Schemes
Switch
Some Mutual Funds provide the investor with an option to shift his investment from one
scheme to another within that fund. For this option the fund may levy a switching fee. Switching
allows the Investor to alter the allocation of their investment among the schemes in order to meet
their changed investment needs, risk profiles or changing circumstances during their lifetime.
Purchase Price
Purchase price is the price paid by a customer to purchase a unit of the fund. If the fund has no
entry load, then the sales price is the same as the NAV. If the fund levies an entry load, then the sales
price would be higher than the NAV, to the extent of the entry load levied.
Redemption Price
Redemption price is the price received by the customer on selling units of an open-ended
scheme to the fund. If the fund does not levy an exit load, the redemption price will be same as the
NAV. The redemption price will be lower than the NAV in case the fund levies an exit load.
33
35
36
An SIP reduces these risks by spreading the investments over a longer period of time, at various
levels of the market.
SIP 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.
2.8 ADVANTAGES OF MUTUAL 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 US and UK is the range of benefits they offer,
which are unmatched by most other investment avenues. We have explained the key benefits in this
section. The benefits have been broadly split into universal benefits, applicable to all schemes and
benefits applicable specifically to open-ended schemes.
37
UNIVERSAL BENEFITS
38
39
fund
companies
but
UTI
remained
in
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 question. But yes, some 24 million
shareholders were accustomed with guaranteed high returns by the beginning of liberalization of the
industry in 1992. This good record of UTI became marketing tool for new entrants. The expectations
of investors touched the sky in profitability factor. However, people were miles away from the
preparedness of risks factor after the liberalization.
40
The Assets Under Management of UTI was Rs. 67bn. by the end of 1987. Let me concentrate
about the performance of mutual funds in India through figures. From Rs. 67bn. the Assets under
Management rose to Rs. 470 bn. in March 1993 and the figure had a three times higher performance
by April 2004. It rose as high as Rs. 1,540bn.
The net asset value (NAV) of mutual funds in India declined when stock prices started falling
in the year 1992. 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. One more thing to be noted, since only closed-end funds were floated in the market, the
investors
disinvested
by
selling
at
loss
in
the
secondary
market.
The performance of mutual funds in India suffered qualitatively. The 1992 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 1020 percent of
their net asset value.
The supervisory authority adopted a set of measures to create a transparent and competitive
environment in mutual funds. Some of them were like relaxing investment restrictions into the
market,
introduction of open-ended funds, and paving the gateway for mutual funds to launch pension
schemes.
The measure was taken to make mutual funds the key instrument for long-term saving. The more the
variety offered, the quantitative would be investors.
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At 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 donts of mutual funds.
ROAD TO FUTURE
By December 2004, Indian mutual fund industry reached Rs 1,50,537crores. It is estimated that by
2010 March-end, the total assets of all scheduled commercial banks should be Rs 40,90,000crores.
The annual composite rate of growth is expected 13.4% during the rest of the decade. In the last 5
years we have seen annual growth rate of 9%. According to the current growth rate, by year 2010,
mutual fund assets will be double.
42
43
Open End
No.of
Close End
No.of
Amount
Schemes
Schemes
Total
Amount
No.of
Schemes
Amount
Balanced
ELSS
Gilt
Growth
Income
Liquid/Money Market
34
26
29
190
139
45
460
1029
409
15395
4375
100408
2
11
4
112
-
138
588
13598
-
36
37
29
194
251
45
460
1167
409
15983
17973
100408
Total
463
122076
129
14324
592
136400
the
Association
of
Mutual
44
Funds
in
India
(AMFI).
Experts believe the growth in the mutual fund assets is due to attractive valuations of the stockafter
the
correction
in
March.
Reliance Mutual fund, which had also seen its assets fall in the previous month, retained its position
as the top fund house in the country.
However at the end of April, there was a jump of Rs 5,448.46 crore in the AUM of Reliance MF
which stood at Rs 96,386.40 crore compared to previous months Rs 90,937.94 crore.
ICICI Prudential follows at the second position with its assets growing by Rs 1,386 crore to Rs
55,708.52
crore
in
April.
Assets of state-run UTI MF increased to Rs 52,549.40 crore in April and it continues to be at the third
place
amongst
the
fund
houses.
Among the top five mutual funds HDFCMF and Franklin Templetons AUMs also increased to Rs
51,770.81
crore
and
Rs
28,
631.63
crore,
respectively.
However, Reliance MF, which was aiming to become the first fund house in the country to cross the
Rs one trillion mark in assets under management, fell short by less than Rs 4,000 crore. Prior to the
release of AUM figures, media reports had said Reliance MF had achieved the Rs 1 trillion mark in
AUM in the last month.
2.10 RISK INVOLVED WITH VARIOUS INVESTMENT OPTIONS
Risks Involved with Mutual Funds
Mutual Funds 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. Equity and fixed income bearing securities have different
risks associated with them. Various risks associated with mutual funds can be described as below.
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This refers to the ease with which a security can be sold at near to its valuation yield to maturity. The
primary measure of liquidity risk is the spread between the bid price and the offer price quoted by the
dealer. Liquidity risk is inherent to the Indian Debt market.
3. Credit Risk
Credit risk or default risk refers to the risk that an issuer of fixed income security may default (i.e.,
will be unable to make timely principal and interest payments on the security). Because of this risk
corporate debentures are sold at a yield above those offered on Government securities, which are
sovereign obligations and free of credit risk. Normally the value of fixed income security will
fluctuate depending upon the perceived level of credit risks well as the actual event of default. The
greater the credit risk the greater the yield require for someone to be compensated for increased risk.
Risk associated with Equities
1. Market Risk
46
The NAV of the scheme investing in equity 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.
OPPORTUNITIES
Creating positive image about the fund and changing the nature of the market itself.
47
CHAPTER 3
LITERATURE REVIEW.
A Lot of study have been done on the Mutual Fund Performances by Asset Management
Company (AMC), Universities, and reacherhouses. Among all some of them are follow:
1 .Sharpe, William F. (1966)
The evaluation of portfolio performance. Drawing on results obtained in the field of
portfolio analysis, economist Jack L. 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 fund's return in a simple yet meaningful manner
48
the return of the benchmark index, where the portfolio is leveraged to have the benchmark
indexs standard deviation. S.NarayanRao , et. al., evaluated performance of Indian mutual
funds in a bear market through relative performance index, risk-return analysis, Treynors
ratio, Sharpes ratio, Sharpes measure , Jensens measure, and Famas measure. The study
used 269 open-ended schemes (out of total schemes of 433) for computing relative
performance index. Then after excluding funds whose returns are less than risk-free
returns, 58 schemes are finally used for further analysis. The results of performance
measures suggest that most of mutual fund schemes in the sample of 58 were able to
satisfy investors .
3 Bijan Roy,
An empirical study on conditional performance of Indian mutual funds. This paper uses a
technique called conditional performance evaluation on a sample of eighty-nine Indian
mutual fund schemes .This paper measures the performance of various mutual funds with
both unconditional and conditional form of CAPM, Treynor- Mazuy model and
Henriksson-Merton model. The effect of incorporating lagged information variables into
the evaluation of mutual fund managers performance is examined in the Indian context.
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.
4 Mishra,(2002)
The mutual fund performance using lower partial moment. In this paper, measures of
evaluating portfolio performance based on lower partial moment are developed. Risk from
49
the lower partial moment is measured by taking into account only those states in which
return is below a pre-specified target rate like risk-free rate. KshamaFernandes(2003)
evaluated index fund implementation in India. In this paper, tracking error of index funds
in India is measured .The consistency and level of tracking errors obtained by some wellrun index fund suggests that it is possible to attain low levels of tracking error under
Indian conditions. At the same time, there do seem to be periods where certain index funds
appear to depart from the discipline of indexation.
5 K. Pendaraki
THE construction of mutual fund portfolios, developed a multi-criteria methodology and
applied it to the Greek market of equity mutual funds. The methodology is based on the
combination of discrete and continuous multi-criteria decision aid methods for mutual
fund selection and composition. UTADIS multi-criteria decision aid method is employed
in order to develop mutual funds performance models. Goal programming model is
employed to determine proportion of selected mutual funds in the final portfolios.
6 ZakriY.Bello (2005)
The responsible stock mutual funds matched to randomly selected conventional funds of
similar net assets to investigate differences in characteristics of assets held, degree of
portfolio diversification and variable effects of diversification on investment performance.
The study found that socially responsible funds do not differ significantly from
conventional funds in terms of any of these attributes. Moreover, the effect of
diversification on investment performance is not different between the two groups.
50
They found that the management of lower performing funds did more trading and had
greater expense ratios than the management of funds that had good performance. We
examine these issues and contribute to the understanding of mutual fund performance by
studying a later time period with a larger sample and by including fixed income as well as
equity funds. We 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.
51
CHAPTER 4
RESEARCH METHODOLOGY
52
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 Data which are collected through the direct
approach to several investors. The direct approach is done to collect the information through the
questionnaire, 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, Magazines, Articles,
Newspapers, Business Magazines, current Index position of security market and several statements
based on these market position given by the several analysts & Finance Ministers etc. After gathering
information it is quite essential to analyze these information and conclude the result by several tools
of analysis like collecting the information, selecting meaningful information, then their scheduling.
After arranging valuable data in sequential way it is important to analyze 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 investors perception. After several steps of different way of analyzing the investors perception the
final concluded portion are described in the conclusion part.
The next portion is Analysis and Discussion, in which several approaches and researches previously
done by renowned financial analyst
Conclusionis 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
53
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
required time so it also helps to take brief knowledge about this topic.
3.1
RESEARCH DESIGN:For this study a survey research was adopted with the help of primary data. For getting
primary data the research tool was a structured questionnaire.
3.2
SOURCE OF DATA
Primary Data
Primary data required for the analysis is being collected directly from respondents through
questionnaire. The type of primary data collected is primarily quantitative. The questions in the
questionnaire have been structured to provide quantitative data from responses. Therefore, the results
of quantitative data were summarized with numberspercentages, averages, or other statistics.
Secondary Data
Secondary Data for the project is being collected from sources like Internet, Reading
Materials of various Investment and Services Products, Catalog and General Insurance Products,
References and results from similar projects done in the past. Various websites, magazines,
newspaper are also being referred for collection of secondary data.
54
SAMPLING
Consumer Behavior Analysis was done on a sample size of 75 respondents. The data is being
collected using a Questionnaire, which will test different determinant factors. The customers are
analyzed on the following parameters:
Demographic Profile
Socio-Economic and Background Status
Consumer Awareness
Preferences Based on
Risk Involved
Brand
Past Performance
Cost of Investment
Returns
Customer Satisfaction
55
56
CHAPTER 5
DATA ANALYSIS&INTERPRETATION
Analysis was carried out using statistical tools like Pie chart, Bar graph etc. The final analysis
has helped us to understand the Customer Perception and Preferences towards the investment
products offered by MAHINDRA FINANCE and overall about Mutual Fund industry.
The sample composition (Sex, age group, Income group) for the survey has been shown below:
57
58
D
o
y
o
u
k
n
o
w
h
a
tM
u
ta
lF
u
n
d
s
a
r
e
?
Fig.5 Sample size-75
The above fig shows that out of 75 people 77% were aware about Mutual Funds. This shows
that there is still a chance to make people aware about mutual fund and organizing sessions in the
offices and in the open markets can do this.
59
The above fig shows that out of 75 people 29 people know about Mutual Funds through
banks. Other methods like TV advertisements and newspapers are other important modes that make
people aware about the MF.
60
The above fig shows that out of 75 people 20 people are associated with about Mutual Funds
less than a year. And important fact is almost every one knows about the Mutual Fund but 25 out of
75 are not associated with Mutual fund and gives me a chance to tell them about various options and
schemes and make them associated with mutual funds.
61
62
63
64
65
66
this could be financial strength of these people. Service class and retired class form the very small
67
part
of
this
in
this
category
might
be
because
they
INFLUENTIAL FACTORS
Brand Name
Competitive Benefits
49
33
24
25
34
23
11
11
Tr
us
60
50
40
30
20
10
0
68
56
Motivator
Demotivator
34
are
risk
averse.
69
70
D
o
y
u
g
e
tin
flu
e
n
c
e
d
b
y
th
e
rtu
rn
s
iv
e
n
b
y
a
fu
n
d
o
rb
y
th
e
c
u
re
n
tN
A
V
o
f
a
fg
u
d
?
Fig 18 Sample size 40
Most of the people are influenced by the returns, which they get while investing in the mutual
funds. The research shows that 45% people influenced by the returns, 25% people influenced by the
NAV (Net Asset Value) and 31% people are influenced by the both (Returns and NAV).
71
Out of 75, those invested in SIP 27 customers who know about SIP out of 75 have knowledge
and invested in SIP. And research show that most of the people interested in investing in the bracket
of 25000-50000.this again is very useful as in most of the AMCs the minimum amount for SIP is 1k
per month only
72
CHAPTER 5
RECOMMENDATIONS&CONCLUSION
7.1 FOR INVESTMENT AND SERVICE DIVISION
1) Let Investment Advisory Services Mean What It Is:
They are not practicing the role of investment advisor in its truest sense. We 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 required by the customer.
73
While this segment as a whole may outperform the larger companies, the risks faced by the
companies are also highermore so in the case of the listed universe of mid-sized companies. Also,
the exposure 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 not put all the eggs in one basket:Depending on ones goals and ones attitude towards risk, an investor should spread his
money across different types of investment equities, bonds and cash. An investor should also try to
diversify within each of these categories. With equities, for example 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.
74
Invest as soon as possible: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.
75
76
CONCLUSION
In India, mutual funds have a lot of potential to grow. Mutual 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 Funds, 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. Mutual funds have filled during the bearish market conditions.
To sell successfully during the bear market, there is a need to educate investors about riskadjusted returns and total portfolio return to enable them to informed decision. Mutual 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.
Mutual 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. Some of them
targeting mostly the retail investor is conservative in nature.
2. It had givea average ,above the average, high return in comparison to its peer as well as
benchmark during the period which its can be observed .
3. Most of the schemes in these funds actually appear to be undiversified which is apparent
from the gap between the standard deviation (measure of total risk) and Beta (Measure of
Systematic risk). This can be justified as Treynor ratio indicates that the fund
outperformed the market whereas Sharpe Ratio indicates that the fund did not perform as
77
well as the market. This is because the fund had a relatively large amount of unique risk or
unsystematic risk i.e. Standard Error of the Estimate.
1. Almost all the scheme of the funds had given a good positive return. This was because of
The Domestic markets perform good, good economic data, progress on the reforms front
and a feel good budget.
The expectation 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. Sustained retail interest could help boost the markets during this
year.
The continuation of bullish trend of the stock market for the second consecutive quarter.
2. The basis of performance measures we can say that DBS Cholla opportunity fund
performing well almost all parameter measures such as Sharp ratio, Treynor measure, MSquare measure, Jensen Alpha etc.
3. In the second quarter of 2004 all the funds had given a negative return. This was because
the quarter saw the domestic markets witness a sharp correction due to poll worries and
the ensuing uncertainty over policy direction under the new government. The change in
sentiment was exacerbated by various global factors such as rising interest rates, oil prices
& slowdown in China and concerns over their impact on FII flows and the economy.
78
4. all the scheme had given a positive return. This was because the market In the third
quarter of 2004 recovery was observed and almost has bounced back sharply from the
lows witnessed in the previous quarter as a result of good corporate earnings, the Union
Budget, as well as the modifications announced to the capital gains tax and the securities
transactions tax (STT).
5. In the fourth quarter of 2004 continuation of the bullish trend was observed and almost all
the scheme had given a positive return. This is because Domestic markets surged on robust
FII flows and closed the quarter and the year at new all-time highs. Expectations of a good
quarterly results season from corporate India, given the possible rise in advance tax
payments also boosted sentiment.
6. UTI Money Market Fund and Templeton India TMA were however not affected by the
Highs and Lows of the economy and the market. And hence was able to give a sustained
earning throughout all the quarter.
79
Mutual Funds can be classified as open-end and closed-end mutual funds. Closed-end
funds are traded like other securities; they do not redeem units for their investors. Open-end
funds will redeem units for net asset value at the request of the investor.
Net asset value equals the market value of assets held by a fund minus the liabilities of
the fund divided by the shares outstanding.
Mutual funds free the individual from many of the administrative burdens of owning
individual securities and offer professional management of the portfolio.
Mutual funds are often categorized by investment policy. Major policy groups include
money market funds; fixed-income funds; balanced and income funds; asset allocation
funds; index funds; and specialized sector funds.
Qualitative analysis has shown that to a close approximation stock prices seem to
follow a random walk with no discernible predictable patterns that investors can exploit.
Such findings are now taken to be evidence of market efficiency, that is , evidence that
market prices reflect all currently available information.
Quantitative analysis focuses on stock price patterns and on proxies for buy or sell
pressure in the market. Qualitative analysis focuses on the determinants of the underlying
value of the firm, such as current profitability and growth prospects. Because both types of
analysis are based on public information, neither should generate excess profits if market are
operating efficiently.
80
Event studies are used to evaluate the market impact of events of interest, using
abnormal stock returns. Such 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 exploit their access to information to at least a limit extent.
iii.
Treynor or Jensen: when the portfolio represents one sub portfolio of many.
Many observations are required to eliminate the effect of the luck of the draw from
the evaluation process because mutual fund returns commonly are very noisy.
10. The shifting mean and variance of actively managed mutual funds make it even harder to
assess performance. A typical example is the attempt of portfolio managers to time the
market, resulting in ever-changing mutual fund betas.
81
14. By and large, the performances record of professionally manage funds lends little credence to
claims that most professionals can consistently beat the market.
Mutual 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 experienced over the last
four to five years. The purpose of this paper is two fold; to examine whether or not fund
managers are able to outperform the market on a risk adjusted basis, and to examine if there
are different periods in the market cycle when managers tend to perform better. More
specifically, the paper examines whether mutual.
The Mutual fund investments are exposed to market risks and are expected to match the Returns from
their benchmark indices are something all aware investors understand. This brings asset Allocation
into play; indicating how much the fund is diversified across stock, sectors & cash. With SEBI
Regulation capping the exposure to individual stocks and sectors, a funds 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.
Having large cash protects the fund from a sharp downfall. But it is also implies that
investors miss out On sudden upward spurts. In recent times, we have experienced an increasing
appetite for cash among equity funds, especially in march, 2008. The question is, does holding more
cash than normal reflects inefficient fund management? To find this answer it has to analyses that
equity funds over a three year Period, a fairly long term investment.
Cash is a critical component of equity mutual funds portfolios, but there is opportunity cost of
holding cash. Funds that maximize shareholder wealth should set the funds cash holding at a level
that the marginal benefit of cash holdings equals the marginal cost. A good allocation
to cash can see the fund manager utilize funds optimally and tide over both the markets ups & down.
82
SUGGESTIONS
Since the individual investor with(has) 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 he/she invested in the Mutual Funds. Where as Mutual Funds 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. For this purpose the prospectus objectives
is to adopt the aggressive strategy to get the benefit of the efficient markets, reason for
investors to utilize mutual funds as investment vehicles.
since fund managers 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. As
an fund manager must consider some fundamental measures which provides the overall
scenario of the mutual funds strategy.
83
84
ANNEXURE:1
REFERENCES
Websites:
www.kotakmutual.com
www.hsbcinvestments.co.in
www.amfiindia.com
www.valueresearchonline.com
Books:
Research Methodology by C.R Kothari
AMFI Mutual Fund Testing ProgrammeChap-1 to 15
Financial Management I M Pandey
Marketing Management by Philip Kotler and Kevin Lane Keller
Reading Materials:
Money Outlook 9th April 2008
Economic Times
Mint
85
ANNEXURE:2
QUESTIONNAIRE
*This questionnaire is only for academic purpose
1) What is your yearly income?
Below 1.5 lakh
3Lakh - 4.5lakh
Through TV
Newspaper
friends
Any Other
Gold
Post Office
Mutual Fund
Insurance
1year-4year
No association
5) What are the various schemes you know about Mutual funds.
Equity
Balanced
Debt
close ended
Open ended
Other
86
25k-50k
50k-75k
6months-12 months
1 year- 3 year
10%-15%
more than 20%
9) Which is the most important parameter, you would look on when investing in Mutual fund?
Risk and return
Tax advantage
Redemption
Transparency
Brand Name
87
10) What type of risk you want to avert by taking Mutual fund?
Financial Risk
Time Risk
11) If you know about SIP, how much you invested in SIP yearly?
6k-25k
25k-50k
50k-75k
No
13) What motivates you to buy a Mutual fund from KOTAK rank according to your preferences ?
Trust
Competitive benefits
Brand name
Services Offered
None of these
14) What do you feel about the Mutual funds provided by KOTAK (please tick one option)
Delighted
Neither Satisfied/Unsatisfied
Satisfied
Unhappy
Nor dissatisfied
88
No
17) As far as investment is concerned, how long have you been associated with MAHINDRA ?
Less than a year
1-2 years
3-5 years
6-10 years
Probably yes
Not sure
Probably not
Definitely not
19) What can be a probable reason for avoiding KOTAK Mutual fund?
Non competitive
Lack of trust
Lack of information
Any other (please specify) _________________________________
89
Name____________________________________
Age
18-25
Occupation
26-35
Service
36-about
Professional
Business
Other_______________
Gender
Male
Female
90