CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

CHAPTER -1
INTRODUCTION

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

INTRODUCTION

The financial market plays a crucial role in the in the economic development of a country by facilitating
the allocation of scarce resources. Financial markets essentially involve the allocation of resources. This
can be thought of as the brain of the entire economic system, the locus of central decision-making; if
they fail, not only will the sectors profit be lower than would otherwise have been, but the performance
of the entire economic system may be impaired.

The efficiency of financial market however, depends on the existence of active and efficient financial
intermediaries in the system. Deposit taking institutional investor is the important financial
intermediaries involved in the task of allocating assets. Structural changes in the financial market have
induced a reverse trend in financial intermediation, i.e. financial disintermediation, in which the central
role of banking is being taken over by investment institutions and institutional investors. The shift from a
credit-based system to a financial has initiated the process of disintermediation, and capital market
based factors like insurance, pension funds and mutual funds are increasingly playing the central role.

The reforms have successfully dismantled the entry barriers, with the result that today there are
domestic and foreign financial institutions, like mutual funds, broking firms and insurance companies,
operating in the Indian market. The introduction of capital adequacy norms, prudential regulation and
world class regulatory mechanisms to protect the interest of investor, besides the strict requirement of
disclosure, have given a boost to the confidence of domestic and foreign investors. The Indian economy
has slowly integrated itself with the global economy and financial market.

The origin of Mutual Fund industry in India is with the introduction of the concept of Mutual Fund by UTI
in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI
players entered the industry. In the past decade, Indian Mutual Fund industry had seen a dramatic
improvement, both qualities wise as well as quantity wise. Before, the monopoly of the market had seen
an ending phase; the Assets under Management (AUM) was Rs.67bn. The private sector entry to the
fund family rose the AUM to Rs.470bn in March 1993 and till April 2004, it reached the height of 1,540
bn. Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the
deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking industry.
The main reason of its poor growth is that the Mutual Fund industry in India is new in the country. Large
sections of Indian investors are yet to be intellectuated with the concept. Hence, it is the prime
responsibility of all Mutual Fund companies, to market the product correctly abreast of selling.

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

What is mutual fund?

A mutual fund is an investment vehicle that is made up of a pool of funds collected from many
investors for the purpose of investing in securities such as stocks, bonds, money market
instruments and similar assets. Mutual funds are operated by money managers, who invest the
fund's capital and attempt to produce capital gains and income for the fund's investors. A
mutual fund's portfolio is structured and maintained to match the investment objectives stated
in its prospectus. Mutual funds raise money by selling shares of the fund to the public, much
like any other type of company can sell stock in itself to the public. Mutual funds then take
the money they receive from the sale of their shares (along with any money made from
previous investments) and use it to purchase various investment vehicles, such as stocks,
bonds and money market instruments.

DEFINATION OF MUTUAL FUND

“The mutual fund as an important vehicle for bringing wealth holders and deficit unit’s together
indirectly”.

-By Mr. James Pierce

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

“Mutual fund as a financial intermediaries which being a wide variety of securities within the reach of
the most modest of investors”.

- By Frank Relicy

According to SEBI mutual fund regulations 1993, “Mutual fund means a fund established in the form
of trust by sponsor to raise money by the trustees through the sale of units to the public under one or
more schemes for investing in securities in accordance with these regulations.

VALUE CHAIN OF MUTUAL FUNDS

Sponsor: Any person who, acting alone or in combination with another body corporate, establishes a
mutual fund.

Asset Management Company: It is the firm that invests the pooled funds of the investors’ in securities
as per the stated investment objectives; in return they charge a fee and provide more diversification,
liquidity and professional management service than it is normally available to individual investors.

Transfer Agent: It is a person employed by a mutual fund to maintain the records of the shareholders
which include calculate and disburse dividends; prepare and mail the statements of their accounts,
federal income tax information and other shareholders notices.

Custodian: As per the law mutual funds are required to protect their portfolio securities by placing them
with the custodian. Mainly all mutual funds use qualified banks as their custodians.

Unit Holder: A person who is holding units in a scheme of mutual fund.

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

How Do Mutual Fund Scheme Operate?

Mutual fund schemes announce their investment objective and seek investments from the public.
Depending on how the scheme is structured, it may be open to accept money from investors,
either during a limited period only, or at any time.
The investment that an investor makes in a scheme is translated into a certain number of 'Units' in
the scheme. Thus, an investor in a scheme is issued units of the scheme.
Under the law, every unit has a face value of Rs10. (However, older schemes in the market may
have a different face value). The face value is relevant from an accounting perspective. The
number of units multiplied by its face value (Rs10) is the capital of the scheme - its Unit Capital.
The scheme earns interest income or dividend income on the investments it holds. Further, when
it purchases and sells investments, it earns capital gains or incurs capital losses. These are called
realized capital gains or realized capital losses as the case may be.
Investments owned by the scheme may be quoted in the market at higher than the cost paid. Such
gains in values on securities held are called valuation gains. Similarly, there can be valuation losses
when securities are quoted in the market at a price below the cost at which the scheme acquired
them.
Investments can be said to have been handled profitably, if the following profitability metric is
positive:
(A) Interest income
(B) + Dividend income
(C) + Realized capital gains
(D) + Valuation gains
(E) - Realized capital losses
(F) - Valuation losses
(G) - Scheme expenses
When the investment activity is profitable, the true worth of a
unit goes up; when there are losses, the true worth of a unit goes
down. The true worth of a unit of the scheme is otherwise called
Net Asset Value (NAV) of the scheme.
When a scheme is first made available for investment, it is called a 'New Fund Offer' (NFO). During
the NFO, investors may have the chance of buying the units at their face value. Post-NFO, when
they buy into a scheme, they need to pay a price that is linked to its NAV.

The money mobilized from investors is invested by the scheme as per the investment objective
committed. Profits or losses, as the case might be, belong to the investors. The investor does not
however bear a loss higher than the amount invested by him.
Various investors subscribing to an investment objective might have different expectations on
how the profits are to be handled. Some may like it to be paid off regularly as dividends. Others
might like the money to grow in the scheme. Mutual funds address such differential expectations
between investors within a scheme, by offering various options, such as dividend payout option,

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

dividend re-investment option and growth option.

The relative size of mutual fund companies is assessed by their assets under management (AUM).
When a scheme is first launched, assets under management would be the amount mobilized from
investors. Thereafter, if the scheme has a positive profitability metric, its AUM goes up; a negative
profitability metric will pull it down.
Further, if the scheme is open to receiving money from investors even post-NFO, then such
contributions from investors boost the AUM. Conversely, if the scheme pays any money to the
investors, either as dividend or as consideration for buying back the units of investors, the AUM
falls.
The AUM thus captures the impact of the profitability metric and the flow of unit-holder money
to or from the scheme.
CHARACTERISTICS OF MUTUAL FUNDS

The following are the characteristics of mutual funds,

 A mutual fund actually belongs to the investors who have pooled their funds. The
ownership of the mutual fund is in the hands of the investor.
 A mutual fund is managed by investment professionals and other service providers, who
earn a fee for their services, from the fund. The pool fund is invested in a portfolio of
marketable investments. The value of portfolio is updated every day.
 The investors share in the fund is denominated by “units”. The value of the unit’s changes
with changes in the portfolio’s value, every day the value of one unit of investment is called
as NET ASSET VALUE. The investment portfolio of the mutual fund is created according
to the stated investment objectives of the fund.

Why Mutual Fund Schemes?

Mutual funds seek to mobilize money from all possible investors. Various investors have different
investment preferences. In order to accommodate these preferences, mutual funds mobilize
different pools of money. Each such pool of money is called a mutual fund scheme. Every scheme
has a pre-announced investment objective. When investors invest in a mutual fund scheme, they
are effectively buying into its investment objective.

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

INVESTMENT FLOW IN MUTUAL FUNDS

Advantages of Mutual Funds for Investors

Mutual Funds have lot of advantages comparing with equity securities

Affordability: A Mutual Fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending
upon the investment objective of the scheme. An investor can buy in to a portfolio of equities,
which would otherwise be extremely expensive.

Diversification: It simply means that you must spread your investment across different securities
(stock, bonds, money market instruments, real estate, fixed deposits etc.) and different sectors
(auto, textile, information technology etc.).

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

Professional Management: It is the Fund Managers job to;

 find the best securities for the fund, given the fund’s stated investment objectives; and
 Keep track of investments and changes in market conditions and adjust the mix of the
portfolio, as and when required.

Variety: Mutual Fund offers a tremendous variety of schemes. This variety is beneficial in two
ways: It offers different types of schemes to investors with different needs and risk appetites;
secondly it offers an opportunity to an investor to invest sums across a variety of schemes, both
debt and equity

Tax Benefits: Any income distributed after March 31, 2002 will be subject to tax in the assessment
of all Unit holders, as a measure of concession to Unit holders of open-ended equity-oriented
funds, income distribution for the year ending March 31, 2003 will be taxed at confessional rate
of 10.5%.

Regulations: Securities Exchange Board of India (“SEBI”), the Mutual Funds regulator has
clearly defined rules, which govern Mutual Funds. These rules relate to the formation,
administrating and management of Mutual Funds and also prescribe disclosure and accounting
requirements.

Liquidity: In open-ended Mutual Funds, you can redeem all or part of your units any time you
wish. A peculiar advantage of a mutual fund is that investment made in its schemes can be
converted back in to cash promptly without heavy expenditure on brokerage, delays etc.

According to the regulations of SEBI, a Mutual Fund in India is required to ensure liquidity. For
open ended schemes, the investor can always approach the mutual fund to repurchase units at
declared ‘Net Asset Value’ (NAV). In case of close ended schemes, units can easily de sold in the
stock market.

Convenience: An investor can purchase or sell fund units directly from a fund, through a broker
or a financial planner. The investor may opt for a Systematic Investment plan (SIP) or a Systematic
Withdrawal Advantage Plan (“SWAP”).

Flexibility: Mutual Fund offer in multiple schemes allow investors to switch easily between
various schemes. The flexibility gives the investor a convenient way to change the mix of his
portfolio over time.

Transparency: Open-ended Mutual Fund Disclose their Net Asset Value(“NAV”) daily and the
entire portfolio monthly this level of transparency, where the investor himself sees the underlying
assets bought with his money, is unmatched any other financial instruments

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

TYPES OF MUTUAL FUNDS SCHEMES

A Mutual Fund scheme can be classified into open-ended scheme or close-ended scheme
depending on its maturity period.

1. Open-ended Fund/Scheme
An open-ended fund scheme is one that is available for subscription and repurchase on a
continuous basis. These schemes do not have fixed maturity period. Investors can conveniently
buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis.
The key feature of open-ended schemes is liquidity.

2. Closed-ended Fund/Scheme
A close- ended fund or scheme has a stipulated maturity period, e.g., 5-7 years. The fund
is open for subscription only during a specified period at the time of launch of the scheme.
Investors can invest in the scheme at a time of the initial public issue and thereafter they can buy
or sell the units of the scheme on the stock exchange where the units are listed. In order to provide
an exit route to the investors, some close-ended funds give an option of selling back the units to
the mutual fund through periods repurchase of NAV-related prices. SEBI regulations stipulated
that at least one of the two exit routes is provided to the investor, i.e., either repurchase facility or
through listing on stock exchanges.

By Investment Objective
A scheme can also be classified as growth scheme, income scheme, or balanced scheme
considering its investment objective. Such schemes may be open-ended schemes as described
earlier. Such schemes may be classified mainly as follows:

1. Growth/Equity-oriented Schemes
The aim of growth funds is to provide capital appreciation over the medium to long-term. Such
schemes normally invest a major part of their corpus in equities. Such funds have comparatively
high risks. These schemes provide different options to the investors like dividend option, capital
appreciation etc., and the investors may close an option depending on their preference. The
investors must indicate the option in the application form. Mutual funds also allow investors to
change the options at the later date. Growth schemes are good for investors having a long- term
outlook seeking appreciation over a period of time.

2. Income/Debt-oriented Scheme

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

The aim of income funds is to provide regular and steady income to investors. Such schemes
generally invest in fixed income securities such as bonds, corporate debentures, government
securities and money market instruments. Such funds are less risky compared to equity schemes.
These funds are not affected because of fluctuations in equity markets. However, opportunities of
capital appreciation are also limited in such funds. The NAVs of such funds are likely to increase
in the short run and vice versa. However, long-term investors may not bother about these
fluctuations.

3. Balanced Fund
The aim of balanced fund is to provide both growth and regular income as such schemes invest
both in equities and fixed income securities in the proportion indicated in their offer documents.
These are appropriate for investors looking for moderate growth. They generally invest 40%-60%
in equity and instruments. The funds are also affected because of fluctuation in sha e prices in the
stock markets.

4. Money market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity, preservation of
capital and moderate income. These schemes invest exclusively in safer short-term instruments
such as treasury bills, certificates of deposit, commercial paper and inter-bank call money,
government securities. Returns on these schemes fluctuate much less compared to other funds are
appropriate for corporate and individual investors as a means to park their surplus funds for short
periods.

5. Gilt Fund
These funds invest exclusively in government securities. Government securities have no
default risk. NAVs of these schemes also fluctuate due to changes in interest rates and other
economic factor as is the case with income or debt-oriented schemes.

6. Index Fund
Index funds replicated the portfolio of a particular index such as the BSE sensitive index,
S&P NSE 50 index (Nifty), etc. these schemes invest in the securities in the same weight age
comprising an index. NAVs of such schemes would rise or fall in accordance with the rise or fall
in the index, through not exactly by the same percentage due to some factors know as ‘tracking
error’ in technical terms. Necessary disclosures in this regard are made in the offer documents of
the mutual fund scheme.

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

These are also exchange traded index funds launched by the mutual funds are traded on the stock
exchanges.

Sector Specific Funds/Schemes

Seek the advice of an export. These are the funds/schemes, which invest in the securities
of only those sectors or industries as specified in the offer documents. E.g., pharmaceuticals,
software, Fast Moving Consumer Goods (FMCG), petroleum stocks, etc. the returns in these funds
are dependent on the performance of the respective sectors/industries. While these funds may give
higher returns, they are more risky compared to diversified funds. Investors need to keep a watch
on the performance of these sectors/ industries and must exit at an appropriate time.

Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provision of the income Tax
Act, 1961 as the government offers tax incentives for investment in specific avenues e.g., Equities-
linked Saving Schemes (ELLS). Pension schemes launched by the mutual fund also offer tax
benefits. These schemes are growth-oriented and invest predominantly in equities. Their growth
opportunities and risk associated are like any equity-oriented schemes.

Systematic Investment Plan (SIP)

Here the investor is given the option of preparing a pre-determined number of post-dated
Cheques in favor of the fund. He will get units on the date of the cheques at the existing NAV.
Systematic Withdrawal Plan
As opened to the Systematic Investment Plan, the Systematic Withdrawal Plan allows the investor
the facility to withdraw a pre-determined amounts/units from his fund at a pre-determined interval.
The investor’s units will be redeemed at the existing NAV as on the day.

RISK AND RETURN GRID

An investor mainly has three objectives:

(i) Safety of principal

(ii) Return
(iii) Liquidity

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

The below is the comparison of the mutual funds with other assets classes on the basis of various factors
such as returns, administrative expenses, risk, investment options, network, liquidity, quality of assets,
guarantee.

Banks Fixed Deposit Bonds Equity

& Market Mutual
Debentures Fund
Returns Low Low to Low to Moderate
to to Better
Moderate moderate High
Administrative High Moderate to Moderate to Low
to to Low
expenses High high Moderate
Risk Low Low to Low to High
to Moderate
Moderate moderate
Less
Investment Options Few Few Many More

Network High Low Penetration Low Low but Low but but
Penetration penetration improving fast improving
Liquidity At a cost Low Low to Moderate
to to Better
moderate High
Quality Of Not Not Not Transparent Transparent
Assets transparent transparent transparent
Guarantee Is present Is present Is present None None

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

OBJECTIVES OF THE STUDY

1. To study the level of awareness of investors towards mutual funds.
2. To analyze the perception of investors towards mutual funds.
3. To study the factors which the investor considers or motivates them to invest in the mutual
funds.
4. To study the most preferred type of mutual fund by the investors.

STATEMENT OF THE PROBLEM

One of the lucrative investment avenues available for investors is mutual fund nowadays. The
problem at hand was to study and measure the awareness level of people regarding mutual funds in
the city. To find out investors awareness about mutual fund and promotion of SIP plan. The study
includes analysis of the investors on the basis of the investment objectives, age etc. it also examined
the position of Mutual funds among investment avenues available for investor and the past
performances of various schemes from the active AMCs in Indian market on the basis of NAV &
time. So that it can help the advisors as well as investors to choose the correct portfolio.

SCOPE OF THE STUDY

There is importance to study the investors awareness regarding mutual fund because these are
affordable by every individual and why they don’t like to invest in mutual funds and what factors
they consider the most while investing in various investment avenues.

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

CHAPTER -2
LITERATURE REVIEW

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

Dr. Sandeep Bansal, Deepak Garg and Sanjeev K Saini (2012), have studied Impact of
Sharpe Ratio & Treynor’s Ratio on Selected Mutual Fund Schemes. This paper examines the
performance of selected mutual fund schemes, that the risk profile of the aggregate mutual fund
universe can be accurately compared by a simple market index that offers comparative monthly
liquidity, returns, systematic & unsystematic risk and complete fund analysis by using the special
reference of Sharpe ratio and Treynor’s ratio.

Dr. K. Veeraiah and Dr. A. Kishore Kumar (Jan 2014), conducted a research on
Comparative Performance Analysis of Select Indian Mutual Fund Schemes. This study analyzes
the performance of Indian owned mutual funds and compares their performance. The
performance of these funds was analyzed using a five year NAVs and portfolio allocation.
Findings of the study reveals that, mutual funds out perform naïve investment. Mutual funds as a
medium-to-long term investment option are preferred as a suitable investment option by
investors.

Dr. Yogesh Kumar Mehta (Feb 2012), has studied Emerging Scenario of Mutual Funds in
India: An Analytical Study of Tax Funds. The present study is based on selected equity funds of
public sector and private sector mutual fund. Corporate and Institutions who form only 1.16% of
the total number of investors accounts in the MFs industry, contribute a sizeable amount of Rs.
2,87,108.01 crore which is 56.55% of the total net assets in the MF industry. It is also found that
MFs did not prefer debt segment.

Dr Surender Kumar Gupta and Dr. Sandeep Bansal (Jul 2012), have done a Comparative Study
on Debt Scheme of Mutual Fund of Reliance and Birla Sunlife. This study provides an overview
of the performance of debt scheme of mutual fund of Reliance, and Birla Sunlife with the help of
Sharpe Index after calculating Net Asset Values and Standard Deviation. This study reveals that
returns on Debt Schemes are close to Benchmark return (Crisil Composite Debt Fund Index:
4.34%) and Risk Free Return: 6% (average adjusted for last five year).

Prof. V. Vanaja and Dr. R. Karrupasamy (2013), have done a Study on the Performance of
select Private Sector Balanced Category Mutual Fund Schemes in India. This study of
performance evaluation would help the investors to choose the best schemes available and will
also help the AUM’s in better portfolio construction and can rectify the problems of
underperforming schemes. The objective of the study is to evaluate the performance of select
Private sector balanced schemes on the basis of returns and comparison with their bench marks
and also to appraise the performance of different category of funds using risk adjusted measures
as suggested by Sharpe, Treynor and Jensen.

E. Priyadarshini and Dr. A. Chandra Babu (2011), have done Prediction of The Net Asset
Values of Indian Mutual Funds Using Auto- Regressive Integrated Moving Average (Arima). In
this paper, some of the mutual funds in India had been modeled using Box-Jenkins
autoregressive integrated moving average (ARIMA) methodology. Validity of the models was

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

tested using standard statistical techniques and the future NAV values of the mutual funds have
been forecasted.

Dr. Ranjit Singh, Dr. Anurag Singh and Dr. H. Ramananda Singh (August 2011), have
done research on Positioning of Mutual Funds among Small Town and Sub-Urban Investors. In
the recent past the significant proportion of the investment of the urban investor is being
attracted by the mutual funds. This has led to the saturation of the market in the urban areas. In
order to increase their investor base, the mutual fund companies are exploring the opportunities
in the small towns and sub-urban areas. But marketing the mutual funds in these areas requires
the positioning of the products in the minds of the investors in a different way. The product has
to be acceptable to the investors, it should be affordable to the investors, it should be made
available to them and at the same time the investors should be aware of it. The present paper
deals with all these issues. It measures the degree of influence on acceptability, affordability,
availability and awareness among the small town and sub-urban investors on their investment
decisions.

Prof. Kalpesh P Prajapati and Prof. Mahesh K Patel (Jul 2012), have done a Comparative
Study On Performance Evaluation of Mutual Fund Schemes Of Indian Companies. In this paper
the performance evaluation of Indian mutual funds is carried out through relative performance
index, risk-return analysis, Treynor's ratio, Sharp's ratio, Sharp's measure, Jensen's measure, and
Fama's measure. The data used is daily closing NAVs. The source of data is website of
Association of Mutual Funds in India (AMFI). The study period is 1st January 2007 to 31st
December, 2011. The results of performance measures suggest that most of the mutual fund have
given positive return during 2007 to 2011.

C.Srinivas Yadav and Hemanth N C (Feb 2014), have studied Performance of Selected
Equity Growth Mutual Funds in India: An Empirical Study during 1st June 2010 To 31st May
2013. The study evaluates performance of selected growth equity funds in India, carried out
using portfolio performance evaluation techniques such as Sharpe and Treynor measure. S&P
CNX NIFTY has been taken as the benchmark. The study conducted with 15 equity growth
Schemes (NAV ) were chosen from top 10 AMCs ( based on AUM) for the period 1st June 2010
to 31st may 2013(3 years).

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

CHAPTER -3
RESEARCH METHODOLOGY

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

RESEARCH METHODOLOGY
Research Design
This Study deals with how the research will be designed and the methodology used to determine
the investors awareness towards mutual funds. The study will be descriptive and explanatory in
nature. Both Secondary as well as Primary data will be collected and used for the study. Primary
data will be collected through the questionnaires, which will be examined for the analysis.
Secondary data source for the study include internet websites etc.
Descriptive research: It will be descriptive research because we will collect primary data for
further research.

Sampling Technique
Simple random sampling technique will be used for the purpose of collecting data from the
respondents. A simple random sample is a subset of a statistical population in which each
member of the subset has an equal probability of being chosen. A simple random sample of the
investors will be selected from which individual investors from it will be randomly selected
targeting one questionnaire each. Simple random sampling helps ensure that the sample
represents the entire population, and is not biased or prejudiced toward any particular groups
within the population. It also helps eliminate the tendency to select based on a basing factor
(Cooper and Emory, 1995).

Sample Size and Unit of the study

Sample size of the respondents from whom the data will be collected will be of respondents.

Data collection tools and Instruments

Primary data will be collected using questionnaires. The questionnaires will be administered to
the individual investors personally. This method will be appropriate since it will encourage
prompt responses from the respondents. The questionnaire will be structured into two sections,
Section one will contain the demographic details of the investor and second section will contain
the questions regarding the perceptions, attitudes , gender differences across trading preference,
various factors which affect the investors to invest .

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

CHAPTER 4
RECENT CHANGES IN MUTUAL FUND
2018

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

1.Long-term capital gain taxation on Equity Mutual funds.

From April 1, 2018, Long-term capital gains on Equity investments be it mutual funds or Equity
shares would be subject to 10% tax.

Equity Investments comes into long-term category after 1 year of holding. Before 1 year it is a
Short-term investment and attracts a short-term capital gain tax of 15%.

Since this is a big but recent change and that too on investments which used to be tax-free, so
considered to be a big jolt to investors.

Thus, to console the Investors, Concept of Grandfathering on the value as on 01.02.2018 was
introduced, which means the cost price to calculate LTCG on equity will be considered as the
actual purchase price or the value as on 01.02.2018, whichever is higher.

2.Dividend distribution tax on Equity Mutual funds.

Not only Long-term capital gain, even the dividend declared by Equity Mutual funds will be
subject to Dividend distribution tax w.e.f 01.04.2018.

This means that though dividend from Equity mutual funds will be tax free in the hands of the
investor but will be subjected to 10% DDT, at the fund house level and investors will get 10% of
dividend lesser than what they would have got if there was no dividend distribution tax.

This was done to ensure that fund house/ Investors should not misuse the dividend way to avoid
long-term capital gains tax.

However, it is important to note that this DDT is only in case of Mutual funds. In Equity shares,
there is no tax on dividends received till rs10 lakh in a financial year.

3.Disclosures on TER
Total Expense ratio or TER are recurring expenses charged to a Mutual fund scheme. It
comprises of the asset management fee, distributors’ commission, registrar’s fee, trustee fee and
other expenses allowed to be charged to a scheme. These are expressed as a percentage of assets
managed.

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

This TER is a kind of the cost to the Investors for investing in Mutual funds.

Though these costs are under strict regulation of SEBI, and AMCs can charge a maximum of 3%
on Equity Mutual funds, but still, there are times when AMCs play with these TERs to suit
markets or their marketing, but within limits, as prescribed.

To help investors track the changes in TERs and to increase transparency in costs, SEBI has
mandated AMCs to disclose the actual TERs on daily basis on their

Websites. (Ref: SEBI Circular number SEBI/HO/IMD/DF2/CIR/P/2018/18 Dt. Feb 05,

2018)

Also, whenever there is a change in the TER, AMCs are required to inform the investors of the
scheme through Email or SMS, at least 3 days prior to the change. This is applicable since March
1, 2018.

Below is the Table showing HDFC Equity TER for the past few days, in the format as prescribed
by SEBI.

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

4. Benchmarking with Total Return Index

Though most of the investors have a tendency to compare the Returns of Mutual funds with other
schemes or past returns, AMCs and Trustees are required to have an appropriate benchmark
aligned with Investment Objective of the scheme to compare the performance of the scheme and
also put on the scheme related documents.

At present, most of the mutual fund schemes (other than debt schemes) are benchmarked to the
Price Return variant of an Index (PRI).

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

PRI only captures capital gains of the index constituents and does not account for the
dividend/interest that are generated from the basket of the constituents.

Whereas in their scheme portfolio they add up the dividend/Interest of the securities, due to
which it looks as if Fund managers are generating Alpha or outperforming the benchmark.

So, now to increase the transparency in the performance of schemes, SEBI through its
circular SEBI/HO/IMD/DF3/CIR/P/2018/04, dated Jan 4, 2018, mandated schemes to have a
benchmark as TRI (Total Return Index).

Unlike PRI, Total Return variant of an Index (TRI) takes into account all dividends/ interest
payments that are generated from the basket of constituents that make up the index in addition to
the capital gains.

Hence, TRI is more appropriate as a benchmark to compare the performance of mutual fund
schemes.

This circular is applicable to all schemes from Feb 1, 2018.

5. Rationalization and Categorization of Mutual funds schemes

This is one of the biggest changes in Mutual fund space, which may directly impact your
investments too as this may result in complete overhauling of the portfolio or merging of
schemes.

SEBI wants investor of the Mutual fund to be able to evaluate the options available and make an
informed decision before making any investment.

So, it is important to have a clearly distinct asset allocation, structure and Investment strategy in
all the schemes.

One should be clearly able to identify the structure of the scheme, which should not be
overlapped with any other scheme of the same fund house.

With this desire in mind, SEBI has decided to standardize the scheme categories and
characteristics of each category. And Fund houses are required to make changes in their product
portfolios and get them approved by SEBI.

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SEBI has broadly classified schemes as –

Equity / Debt/ Hybrid / Solution-Oriented schemes / other schemes.

In each category above, SEBI has suggested specific Type of schemes. With a specific structure

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Categorization and Structure in Equity Funds

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

The Interesting point here is that only one scheme per category would be permitted.

So, now fund houses cannot have 2 funds (with different names) having the same characteristics.
Means one fund house cannot have 2 large caps, 2 Mid-caps and so on.

This is not all, to ensure uniformity in the investment universe, now SEBI has clearly defined the
Large Cap, Midcap and Small cap stocks to be taken in a Mutual fund’s portfolio. As follows:

 Large Cap – the 1st-100th company in terms of full market capitalization

 Mid-cap – the 101st-250th company in terms of full market capitalization
 Small-cap – 251st company onwards in terms of full market capitalization

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Categorization and Structure in Debt Funds

SEBI has mandated all AMCs to submit their proposals by December 15, 2017.

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Some of the mutual fund schemes have already got the approval and changed their names with required
strategies. Check out the list below:

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Conclusion

Changes in mutual fund disclosure norms with TER and Benchmarking against TRI index are a
welcome move as this will increase the Transparency of the products.

The categorization of the schemes is also a good move for the investors as they will be in a better
position to compare and understand the feature of the scheme. However, it may limit the Fund
manager’s stock selection beyond a set category and may impact the funds’ performance for a
short time frame.

Investors should keep a watch on the developments and the changes and take an informed
decision.

You will find many such changes in the coming days in many funds, and if there is a
fundamental attribute change, then you will be given adequate time to redeem your holdings
without exit load. But in case you redeem, then do keep in mind the taxation issue.

Also, at the time of the Investments reviews do check the category and structure of the fund
before and after these changes.

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CHAPTER -5 ANALYSIS

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

From the above graph it can be easily interpretated that the respondents who don’t invest in
mutual funds ,the reasons behind that it was found that some of them are not aware of the mutual
funds and precieve that there is high risk when we invest in nutual funds and remaining due to
the high expense ratio involved in mmutual funds .Some of the repondents feel that there are exit
loads when they will exit from any mutual fund which decreases the liquidity factor of Mutual
Funds ,making it less preferable for investing.

About majority of respondents(92%) felt SIP mode would be beneficial compared to Lump sum
mode of investment as the former averages out market volatility and also removes the concern of
timing the markets.

Majority of respondents(56%) expect returns of 10-15% returns for their investment in mutual
funds

Respondents generally learnt about Mutual Funds from their peers(36%) and newspapers(28%)

56% of respondents prefer investing in Growth funds

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

CHAPTER-6
FINDINGS AND RECOMMENDATIONS

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CUSTOMER PERCEPTION TOWARDS MUTUAL FUNDS

FINDINGS AND RECOMMENDATIONS

 It has been found that only few respondents like to invest in mutual funds as they mainly
consider that they lack the necessary information required to invest
 Some of the respondents like to invest in the mutual funds but they are not aware of the
schemes in which they should invest and they don’t know even how the mutual fund
scheme operates.
 It was observed that most of the respondents who want to invest their money in the different
investment avenues consider the return they will get if they will invest their money in that
particular class.
 Most of the respondents are risk averse they want to take low risk but it is seen mainly they
wish to invest in mutual funds because of the tax benefit and high returns they can avail.
 It was found from the study that the respondents will like to invest in mutual funds only
when they will get maximum returns
 It is observed that the respondents are aware of the mutual funds mainly through their peer
groups and newspaper advertisements.
 As, from the data analysis it is seen that the respondents of all age want to invest for their
growth benefit and they prefer to have more systematic investment plan so, there is a wide
scope of mutual funds as in mutual funds any individual of any age group of any income
class can start their investemnt by deciding their future goal.
 As, the respondents are not much aware of the mutual funds they want to have their growth
by investing their money so finacial advisors must guide them and should explain them all
the rules and regulations associated with mutual funds.
 As, with the investors financial goal, suitable schemes can be suggested to them with the
return they expect and for how long they csn invest for their growth benefits and finance
their future expenses .
 So, proper awareness must be generated among the people as they like to invest but they
are not aware of the mutual funds as they are only aware of banks scheme and consider
them safe so they must be educated further regarding the same about mutual funds.

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CHAPTER -7
REFERNCES

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Kumar, R. & Goel, N. (2014). An Empirical Study on Investors’ Perception towards Mutual Funds,
INTERNATIONAL JOURNAL OF RESEARCH IN MANAGEMENT & BUSINESS STUDIES, Vol.
1, Issue 4, pp. 49-52.

Singh, K. B. (2012). A study On Investors attitude Towards Mutual Fund As An Investment

Option, INTERNATIONAL JOURNAL OF RESEARCH IN MANAGEMENT, Vol. 2, Issue 2, pp.
61-70.

Sharma, N. (2012). Indian Investors Perception towards Mutual Funds, BUSINESS

MANAGEMENT DYANMICS, Vol. 2, pp. 01-09.

Unnamalai, T. (2016). A Study On Awareness Of Investors About The Mutual Fund Investments
In Musiri Taluk, INTERNATIONAL JOURNAL OF MANAGEMENT (IJM), Vol. 7, Issue 2, pp.
115-122.

Vyas, R (2012). Mutual Fund Investor Behavior And Perception In Indore City, JOURNAL OF
ARTS, SCIENCE & COMMERCE, Vol. 3, Issue 3(1), pp. 67-75.

Kalaiselvi, M. (2016). A study On Investors Perception Towards Mutual Funds Investments (With
Special Reference To Pollachi Town), INTERNATIONAL JOURNAL OF COMMERCE,
BUSINESS AND MANAGEMENT (IJCBM), Vol. 5, pp. 124-128.

Begum, N. N. & Rahman, S. (2016). An Analytical Study On Investor’s Preference Towards

Mutual Fund Investment: A Study In Dhaka City, Bangladesh, INTERNATIONAL JOURNAL OF
ECONOMICS & FINANCE, Vol. 8, pp. 184-191.

Basics of financial market- Karvy Books

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