INTRODUCTION

There are a lot of investment avenues available today in the financial market for an
investor with an investable surplus. He can invest in Bank Deposits, Corporate
Debentures, and Bonds where there is low risk but low return. He may invest in Stock of
companies where the risk is high and the returns are also proportionately high. The recent
trends in the Stock Market have shown that an average retail investor always lost with
periodic bearish tends. People began opting for portfolio managers with expertise in stock
markets who would invest on their behalf. Thus we had wealth management services
provided by many institutions. However they proved too costly for a small investor.
These investors have found a good shelter with the mutual funds.

Mutual fund industry has seen a lot of changes in past few years with multinational
companies coming into the country, bringing in their professional expertise in managing
funds worldwide. In the past few months there has been a consolidation phase going on in
the mutual fund industry in India. Now investors have a wide range of Schemes to choose
from depending on their individual profiles.

My study gives an overview of mutual funds – definition, types, benefits, risks,

limitations, history of mutual funds in India, latest trends, global scenarios. I have
analyzed a few prominent mutual funds schemes and have given my findings.

NEED FOR THE STUDY

The main purpose of doing this project was to know about mutual fund, Its functioning
and perception of customer’s about mutual funds. This helps to know in details about
mutual fund industry right from its inception stage, growth and future prospects.
It also helps in understanding different schemes of mutual funds. Because my study
depends upon prominent funds in India and their schemes like equity, income, balance as
well as the returns associated with those schemes.

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SCOPE OF THE STUDY

In my project the scope is limited to some prominent mutual funds in the mutual fund
industry. I analyzed the funds depending on their schemes like equity, income, balance.
But there is so many other schemes in mutual fund industry like specialized (banking,
infrastructure, pharmacy) funds, index funds etc.

My study is mainly concentrated on equity schemes, the returns, in income schemes the
rating of CRISIL, ICRA and other credit rating agencies.

COMPANY PROFILE

There are four Mutual fund Schemes which I have chosen to understand Mutual funds
functioning and analysis .

• Kotak Mutual Fund

• SBI Mutual Fund
• Franklin Templeton India Mutual Fund
• Principal Mutual fund

Kotak Mutual Fund

Kotak Mahindra is one of India's leading financial institutions, offering complete

financial solutions that encompass every sphere of life. From commercial banking, to
stock broking, to mutual funds, to life insurance, to investment banking, the group caters
to the financial needs of individuals and corporates.

The group has a net worth of Rs.7,911 crore and employs around 20,000 employees
across its various businesses, servicing around 7 million customer accounts through a

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distribution network of 1,716 branches, franchisees and satellite offices across more than
470 cities and towns in India and offices in New York, California,San Francisco, London,
Dubai, Mauritius and Singapore.

Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned

subsidiary of KMBL, is the Asset Manager for Kotak Mahindra Mutual Fund (KMMF).
KMAMC started operations in December 1998 and has over 10 Lac investors in various
schemes. KMMF offers schemes catering to investors with varying risk - return profiles
and was the first fund house in the country to launch a dedicated gilt scheme investing
only in government securities.

SBI Mutual Fund

SBI Mutual Fund (SBI MF) is one of the largest mutual funds in India with an investor
base of over 5.8 million. With over 20 years of rich experience in fund management, SBI
MF brings forward its expertise in consistently delivering value to its investors.

SBI MF draws its strength from India's Largest Bank State Bank of India and Société
Générale Asset Management, France.

Franklin Templeton India Mutual Fund

Franklin Templeton Investments is one of the largest financial services groups in the
world based at San Mateo, California USA. The group has US$ 600.4 billion in assets
under management globally (as on August 31, 2010).

Franklin Templeton has offices in 33 locations across India and manages average AUM
of Rs. 39864.12 crores for over 22 lakh investors (as on August 31, 2010).

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Principal Mutual fund

Principal PNB Asset Management Company Private Limited (in association with Vijaya
Bank) is a joint venture between Principal Financial Group (Mauritius) Limited,
subsidiary of Principal Financial Services Inc., USA (member of Principal Financial
Group) and two of the largest banks in India: Punjab National Bank (PNB) and Vijaya
Bank. Since beginning operations in India, Principal has been positioned at the forefront
of long-term investment solutions for both retail and institutional investors through its
mutual fund plans. Its diverse investment options, coupled with value-added services,
have positioned Principal as an innovator in the Indian Mutual Fund Industry.

Principal has developed strong expertise in understanding customer needs and mapping
them against our wide-ranging superior products. Its products, especially in the Debt and
Tax Benefit Category, have won numerous awards for consistent performance over time.
Over the next one to two years, Principal looks forward to introducing new, ambitious
plans for our operations in India.

OBJECTIVE
• To give a brief idea about the benefits available from Mutual Fund investment
• To give an idea of the types of schemes available.
• To discuss about the market trends of Mutual Fund investment.
• To study some of the mutual fund schemes and analyse them
• Observe the fund management process of mutual funds
• Explore the recent developments in the mutual funds in India
• To give an idea about the regulations of mutual funds

METHODOLOGY

To achieve the objective of studying the stock market data has been collected.
Research methodology carried for this study can be two types

1. Primary 2. Secondary

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PRIMARY

The data, which has being collected for the first time and it is the original data.In this
project the primary data has been taken from HSE staff and guide of the project.

SECONDARY

The secondary information is mostly taken from websites, books, journals, etc.

LIMITATIONS

• The time constraint was one of the major problems.

• The study is limited to the different schemes available under the mutual funds selected.
• The study is limited to selected mutual fund schemes.
• The lack of information sources for the analysis part.

MUTUAL FUND

A Mutual Fund is a trust registered with the Securities and Exchange Board of India
(SEBI), which pools up the money from individual / corporate investors and invests the
same on behalf of the investors /unit holders, in equity shares, Government securities,
Bonds, Call money markets etc., and distributes the profits. 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. This pooled income is professionally
managed on behalf of the unit-holders, and each investor holds a proportion of the
portfolio i.e. entitled not only to profits when the securities are sold, but also subject to
any losses in value as well .

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INVESTING IN MUTUAL FUNDS

For retail investor who does not have the time and expertise to analyze and invest in
stocks and bonds, mutual funds offer a viable investment alternative. This is because:

• Mutual Funds provide the benefit of cheap access to expensive stocks.

• Mutual funds diversify the risk of the investor by investing in a basket of assets.
• A team of professional fund managers manages them with in-depth research
inputs from investment analysts.
• Being institutions with good bargaining power in markets, mutual funds have
access to crucial corporate information which individual investors cannot access.

CONCEPT OF MUTUAL FUND

The following chart gives us operational flow of a Mutual Fund :

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ADVANTAGES

• Affordability
• Professional Management
• Diversification
• Variety of Investment according to Financial status of the Investor
• Return potential
• Flexibility
• Transparency
• Tax Benefits
• Liquidity
• Clear – Cut regulations [SEBI]

LIMITATIONS OF MUTUAL FUNDS

• Investors cannot contain costs so long as SEBI specified limits are complied with.
• Investors pay management fees so long as they remain invested in the fund.
• No tailor made portfolios
• Investors end up delegating investment decisions to fund managers and have no
say/control on their decisions
• The availability of a large number of mutual fund schemes means that, except for
the empowered investor , others require advice when selecting a fund which best
meets their investment objectives

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TYPES OF MUTUAL FUNDS

GROWTH OF MUTUAL FUNDS IN INDIA

The Indian Mutual Fund has passed through three phases. The first phase was
between 1964 and 1987 and the only player was the Unit Trust of India, which had a
total asset of Rs. 6,700 crores at the end of 1988. The second phase is between 1987
and 1993 during which period 8 Funds were established (6 by banks and one each by
LIC and GIC). The total assets under management had grown to 61,028 crores at the
end of 1994 and the number of schemes was 167.
The third phase began with the entry of private and foreign sectors in the Mutual
Fund industry in 1993. Kothari Pioneer Mutual Fund was the first Fund to be

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 established by the private sector in association with a foreign Fund.
As at the end of financial year 2000(31st march) 32 Funds were functioning with Rs.
1, 13,005 crores as total assets under management. As on august end 2000, there were
33 Funds with 391 schemes and assets under management with Rs 1, 02,849 crores.
The securities and Exchange Board of India (SEBI) came out with comprehensive
regulation in 1993 which defined the structure of Mutual Fund and Asset
Management Companies for the first time.
Several private sectors Mutual Funds were launched in 1993 and 1994. The share of
the private players has risen rapidly since then.
Currently there are 34 Mutual Fund organizations in India managing 1,02,000 crores.

DATA ANALYSIS AND INTERPRETATION

ANALYSIS OF MUTUAL FUND SCHEMES

To study the currently available schemes I have taken the fact sheets available with
the AMCs. The fact sheet provides the historical data about the various schemes
offered by the AMC, investment pattern, dividend history, ratings given, Fund
Managers’ Credentials, etc.

I have analyzed the schemes in the following three categories:

• Equity or Growth Scheme
• Balanced Scheme
• Income or Debt Scheme
I have studied the schemes of the following AMCs

• Kotak Mutual Fund

• SBI Mutual Fund
• Franklin Templeton India Mutual Fund

Principal Mutual fund

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 BASIS FOR ANALYSIS

Net Asset Value (NAV) is the best parameter on which the performance of a mutual
fund can be studied. We have studied the performance of the NAV based on the
compounded annual return of the Scheme in terms of appreciation of NAV, dividend
and bonus issues. WE have compared the Annual returns of various schemes to get an
idea about their relative standings.

VALUATION OF MUTUAL FUND

The net asset value of the Fund is the cumulative market value of the assets Fund net of
its liabilities. In other words, if the Fund is dissolved or liquidated, by selling off all the
assets in the Fund, this is the amount that the shareholders would collectively own. This
gives rise to the concept of net asset value per unit, which is the value, represented by the
ownership of one unit in the Fund. It is calculated simply by dividing the net asset value
of the Fund by the number of units. However, most people refer loosely to the NAV per
unit as NAV, ignoring the “per unit”. We also abide by the same convention.
Calculation of NAV
The most important part of the calculation is the valuation of the assets owned by the
Fund. Once it is calculated, the NAV is simply the net value of assets divided by the
number of units outstanding. The detailed methodology for the calculation of the net asset
value is given below.
The net asset value is the actual value of a unit on any business day. NAV is the
barometer of the performance of the scheme.
The net asset value is the market value of the assets of the scheme minus its liabilities and
expenses. The per unit NAV is the net asset value of the scheme divided by the number
of the units outstanding on the valuation date.

Equity or Growth Scheme

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These schemes, also commonly called Growth Schemes, seek to invest a majority of
their funds in equities and a small portion in money market instruments. Such
schemes have the potential to deliver superior returns over the long term. However,
because they invest in equities, these schemes are exposed to fluctuations in value
especially in the short term.

In this equity or growth scheme segment I selected the following schemes in the
selected AMC’s

Balanced Scheme

The aim of Balanced Funds is to provide both growth and regular income. Such
schemes periodically distribute a part of their earning and invest both in equities and
fixed income securities in the proportion indicated in their offer documents. This
proportion affects the risks and the returns associated with the balanced fund - in case
equities are allocated a higher proportion, investors would be exposed to risks similar
to that of the equity market.
Balanced funds with equal allocation to equities and fixed income securities are ideal
for investors looking for a combination of income and moderate growth.

In this balanced fund scheme segment I selected the following schemes in the
selected AMC’s

SBI Magnum Balance Fund has not been given any rating by CRISIL but it has been
performing well. The investments of the Funds are well diversified in both Equity and
Debt. The total Equity Holdings as on April 30th stands at 67.77% of the total assets.
It has out performed CRISIL Balanced Fund Index by 45.38% for the 52 weeks
period.

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SBI Magnum Income Fund is performing very well right from the inception with
generous payment of dividends has been assigned AAA rating by CRISIL. The Fund
invests about 90% in AAA rated securities and more than 60% of its investments
have a maturity ranging between 3 to 10 years. I has come with bonuses in Jan 2010
1:3 and September 2010 1:10. However, it under perform vis-à-vis CRISIL Comp.
Bond Fund index by 0.14.

Principal Balanced Fund has ranked CP3 by CRISAL, which means average in the
open-ended balanced Fund category and ranks within the top 70% of the 19 schemes
in this category. It has invested 67% in Equity and about 16% in Government
Securities. In Equity it invested primarily in Pharmaceuticals, Construction Materials,
Automobiles and banks.

Principal Income Fund has ranked CP3 by CRISAL, which means average in the
open-ended debt category and ranks within the top 70% of the 21 schemes in this
category. The investments have average maturity of 7.3 years with more than 50%
investments having a maturity of above 7 years. It has invested close to 50% in
Government Securities, above 40% in NCD/Deep Discount Bonds.

Franklin Templeton India Balanced Fund invested about 70% of its assets in Equity
and 75% in Debts. The recent additions to its portfolio are Reliance Industries, Asian
paints and BPCL. It invests primarily in IT consulting, auto parts equipment, Banks,
Tele Electrical industrial conglomerates. It invested mainly in the AAA rated Debts.

Franklin Templeton India Income Fund has most of the investments in low risk AAA
and sovereign securities. Above 45% of the investments are in Gilt, 25% in PSU/PFI
bonds and 24% in corporate Debts. The average maturity of this scheme is at 4.87
years. The performance of the Fund is inline with CRISIL Composite Bond Fund.

Kotak Balance Fund has invested close to 70% in Equity and about 30% in Debt
instruments and Short Term Deposits. The Fund has a well-diversified portfolio of
equity with prime investments in BHEL, Siemens EID parry, Bulrampur Chini and

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 SBI. In the debt Instruments it has invested in Railway Bonds and maturing
Government Stock.

Kotak Liquid Fund has invested about close to 25% in corporate Debt, 10% in public
sector undertakings, about 25% in money market instruments. It has also invested
40% in term deposits. The average maturity of portfolio is 2.3 years. Almost all the
instruments are well rated implying they are safe instruments also their investments
are highly diversified.

PERCEPTION OF CUSTOMERS ABOUT MUTUAL FUNDS

REASONS FOR PREFERENCE OF MUTUAL FUNDS

Mutual funds are preferred for various reasons. The benefits derived from mutual
fund investment acts as a reason for preferring mutual funds. In case of mutual fund its
distinctive features also act as a reason for investor’s to invest in it. Mutual funds are a
popular investment instrument and most people choose to invest in mutual funds to reach
the highest return on their investments. Mutual funds are safer than investing in stocks,
bonds or other assets because you diversify your investments already through investing in
one mutual fund. You should invest in a mutual funds systematic investment plan
because you don’t buy always on peak price and you don’t need much money to start
investing . Investing in a mutual funds systematic investment plan is the most efficient
way to make profit with mutual funds.

TABLE 1.1

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 REASONS FOR PREFERENCE OF MUTUAL FUNDS

Preference of Mutual Funds No. of investors Percentage

Savings 28 28

Returns 41 41

Diversification 8 8

Risk tolerance 23 23

Total 100 100

Returns has been the main reason for preferring mutual funds as 41% of the respondents
have opted for it, while saving is the reason for 28% of investor’s, risk tolerance for 23%
and diversification for 8% of the respondents

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 Reasons for preference of Mutual funds

45
No. of investors 40
35
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PREFERENCE TOWARDS INVESTING IN MUTUAL FUND IN

COMPARISON TO SHARES

Investing in shares is yet another option provided to people, but still investor’s since out
differences towards investing in mutual funds than in shares. They differentiate the two
with different factors including risk, tax benefits and so on..

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 Table 1.2

PREFERENCE TOWARDS INVESTING IN MUTUAL FUND IN COMPARISON TO

SHARES

Difference No. of investors Percentage

Savings 46 46
Tax benefits 22 22
Diversification 12 12
Risk tolerance 20 20
Total 100 100

From the above table it is clear that 46% of the respondents feel that savings is the
major factor of difference for investing in mutual funds rather than in shares.22% of
investor’s feel that tax benefits is considered as a factor to invest in mutual fund than
investing in shares and 20% feel that risk tolerance is the factors of difference and 12%
feel that diversification is the factor considered to invest in mutual funds rather than in
shares.

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NUMBERS OF PLANS INVESTORS HAVE INVESTED IN MUTUAL
FUNDS

Investor’s Invest in not only one plan in mutual fund. They select as to which would be
beneficial for them and accordingly invest in many plans which fulfill their desire.

TABLE 1.3

NUMBERS OF MUTUAL FUND PLANS INVESTORS HAVE INVESTED IN

No of plans No. of investors Percentage

Only one 42 42
Two 12 12
Three 10 10
More than Three 36 36
Total 100 100

From the above table it is clear that 42% of the respondents have invested in only
one plan and 36% of the respondents have invested in more than three plans.12% have
invested in two plans and the rest 10% have invested in three plans.

SUGGESTIONS

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• The investors should be given the option of attending investor’s education
programme once in a month.
• The information about the products should be revealed exactly to the investors,
and they should be advised on the risks attached to them.
• Portfolio of the securities should be kept under check so as to increase the growth
of funds, which in turn will increase the satisfaction of the investors.
• Providing proper reports revealing all the information related to the investment
have to be sent to the investors regularly and this can change the general attitude
towards mutual funds.
• The returns cannot be guaranteed by the concern but then the brand image can
help the concern to overcome this problem.
• Investors can take their own steps in analyzing the market conditions and can be
advised to make a portfolio and investment analysis on their investment.
• The investors should be given all the information regarding their investment and
the benefits or the drawbacks of the investments.

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BIBLIOGRAPHY

Websites:

www.indiastudychannel.com
www.kotakmutual.com
www.principalindia.com
www.sbimf.com
www.franklintempletonindia.com

Reference books

•FINANCIAL INSTITUTIONS AND MARKETS - L.M.BHOLE

•INVESTMENT MANAGEMENT - V.K.BHALLA

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