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A Report Submitted the Partial Fulfillment Project Report oninMutual Fund For the requirement of the award of

Investment Pattern in India BBA Degree under Patna University, Patna (Bihar)
By Shreeharsh Kumar Roll No: - 194 Registration No:-1064 of 2007





A Report Submitted in the Partial Fulfillment For the requirement of the award of

BBA Degree under Patna University, Patna (Bihar)



With regard to my project with mutual fund I would like to thank each and every one who offered help, guideline and support whenever required.

First and foremost I would like to express gratitude to Franklin Templeton branch manager Mr. Alok Trivedi and other staffs for their support and guidance in the project work. I am extremely grateful to my guide, Pawan Kumar & Rajeev Kumar for their valuable guidance and timely suggestions. I would like to thank all the bank manager of different bank branches for the valuable guidance and support. I would also like to thank our B.B.A coordinator Prof. (Dr.) Jayanti sircar for her valuable suggestion to us.

It would be prudent pleasure to have the opportunity to extend my heart- felt thanks to everybody who helped me through the successful completion of this project.


In few years mutual fund has emerged as a tool for ensuring ones financial well being. Mutual funds have not only contributed to the India growth story but have also helped families tap into the success of Indian Industry. As information and awareness is rising more and more people are enjoying the benefits of investing in mutual funds. The main reason the number of retail mutual fund investors remains small is that nine in ten people with incomes in India do not know that mutual fund exist. But once people are aware of mutual fund investment opportunities, the number of people who decide to invest in mutual funds increases to as many as one in five people. The trick for converting a person with no knowledge of mutual funds to a new mutual fund customer is to understand which of the potential investors are more likely to buy mutual funds and to use the right arguments in the sales process that customers will accept as important and relevant to their decision.

This project gave me a great learning experience and at the same time it gave me enough scope to implement my analytical ability. The analysis and advice presented in this project report is based on market research on the saving and investment practices of the investors and preferences of the investors for investment in mutual funds. This report will help to know about the investors preferences in mutual fund means are they prefer any particular asset management company (AMC), which type of product they prefer, which option (growth or dividend) they prefer or which investment strategy they follow (systematic investment plan or one time plan). This project as a whole can be divided into two parts. The first part gives an insight about mutual fund and its various aspects, the company profile, objectives of the study, research methodology. One can have a brief knowledge about mutual fund and its basics through the project.

The second part of the project consists of data and its analysis collected through survey done on 150 people. For the collection of primary data I made a questionnaire and surveyed of 150 people. I had taken interview of many people by visiting the different branches of Bank of India, United Bank of India and Central Bank of India where I have collected primary data for my project work. I have collected my secondary data from the various type of document of Franklin Templeton as well as by using the different types of website of mutual fund. This project covers the topic Investment pattern in India. The data collected has been well organized and presented. I hope the research findings and conclusion will be of use.

Chapter 1. Introduction 2. Company profile 3. Financial planning & Mutual fund 4. Objectives, scope & Strategy 5. Research methodology 6. Data analysis & interpretation 7. Findings & conclusion 8. Suggestions & recommendations 9. Appendix (Questionnaire & Bibliography) 10. Special Thanks 102-109 110 63-69 70-72 73-93 94-97 98-101 48-62 Page No. 8-35 36-48

Chapter 1 Introduction


MUTUAL FUND: A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invest it in stocks, bonds, short-term money market instruments and other securities. Mutual funds have fund manager who invests the money on behalf of the investors buying/selling stocks, bonds etc. Currently, the worldwide value of all mutual funds totals more than $US 26 trillion (Source: - as on Dec 09). The United States leads with the number of mutual fund schemes. There are more than 8000 mutual schemes in the U.S.A. Comparatively, India has around 1000 mutual fund schemes, but this number has grown exponentially in the last few years. The Total Assets under Management in India of all mutual funds put together touched a peak of Rs.6,65,146 crs at the end of Dec 2009(source:AMFI monthly report of Dec 2009)in India. A Mutual Fund is an investment tool that allows small investors access to a 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 funds Net Asset value (NAV) is determined each day. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders.


HISTORY OF MUTUAL FUND INDUSTRY:Massachusetts Investors Trust (now MFS Investment Management) was founded on March 21st 1924.After one year it had 200 shareholders and $392,000 in assets. The entire industry, which included a few closed-end funds, represented less than $10 million in 1924. The stock market crash of 1929 hindered the growth of mutual funds. In response to the stock market crash the U.S.A. government passed the securities act of 1933 and the securities exchange act of 1934.These laws require that a fund be registered with the securities and exchange commission and provide prospective investors with a prospectus that contains required disclosures about the fund, the securities themselves and fund manager. The sec helped draft the investment company act of 1940, which sets forth the guidelines with which all sec-registered funds today must comply. With renewed confidence in the stock market, mutual funds began to blossom. By the end of the 1960s, there were approximately 270 funds with $48 billion in assets. The first retail index fund, First Index Investment trust, was formed in 1976 and headed by John Bogle, who conceptualized many of the key tenets of the industry in his 1951 senior thesis at Princeton University. It is now called the Vanguard 500 index fund and is one of the worlds largest mutual funds, with more than $100 billion in assets. A key factor in mutual fund growth was the 1975 change in the internal revenue code allowing individuals to open individual retirement accounts (IRAs).Even people already enrolled in corporate pension plans could contribute a limited amount (at the time, up to $2,000 a year).Mutual funds are mow popular in employersponsored defined-contribution retirement plans such as (401(k) s) and 403(b) s as well as IRAs including Roth IRAs. As of October 2007 there are 8,015 mutual funds that belong to the Investment Company Institute (ICI), a national trade association of investment companies in the United States, with combined assets of $12.356 trillion. In early 2008, the worldwide value of all mutual funds totaled more than $26 trillion.



The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the government of India and Reserve Bank. Though the growth was slow, but it accelerated from the year 1987 when nonUTI 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) were Rs 6700 crores. The private sector entry to the fund family raised the AUM to Rs 47000 crores in March 1993 and till April 2004; it reached the height if Rs 154000 crores. The mutual fund industry is obviously growing at a tremendous space with the mutual fund industry can be broadly put into five phases according to the development of the sector. Each phase is briefly described as follows:1) First phase-1964-87 (Growth of unit trust of India):Unit trust of India (UTI) was established on 1963 by an Act of parliament by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit scheme 1964.At the end of 1988 UTI had Rs6700 crores of assets under management. 2) Second Phase-1987-1993(Entry Of Public Sector Funds):1987 marked the entry of non-UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India(GIC).SBI Mutual Fund was the first non-UTI Mutual fund established in June 1987 followed by Canara Bank Mutual Fund (Dec 87),Punjab National Bank Mutual Fund (Aug 89),Indian Bank Mutual Fund (Nov 89),Bank of India(Jun 90),bank of Baroda Mutual Fund(Oct 92).LIC established its Mutual Fund in June 1989 while GIC had set up its mutual fund in December the end of 1993,the mutual fund industry had assets under management of Rs47,004crores. 3) Third Phase-1993-1996(Entry Of Private Sector Funds):1993 was the year in which the first mutual fund regulations came into being, under which all mutual funds, except UTI were to be registered and governed.


The erstwhile Kothari pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. 4) Fourth Phase 1996-1999 (Growth and SEBI Regulation):Since 1996, the mutual fund industry in India saw a tighter regulation and higher growth. It scaled new heights in terms of mobilization of funds and number of players. Deregulation and liberalization of the Indian economy had introduced competition and provided impetus to the growth of the industry. Finally, most investors-small or large-started showing interest in mutual funds. Measures were taken both by SEBI to protect the investor and by the Government to enhance investors returns through tax benefits. A comprehensive set of regulations for all mutual funds operating in India was introduced with SEBI (mutual fund) Regulations, 1996. These regulations set uniform standards for all funds. The erstwhile UTI voluntarily adopted SEBI guidelines for its new schemes. Similarly, the budget of union government 1999 took a big step in exempting all mutual fund dividends from income tax in the hand of investors. Both the 1996 regulations and the 1999 budget must be considered of historic importance, given their far-reaching impact on the fund industry. 5) Fifth Phase-1999-2004 (Emergence of a large and uniform industry):The other major development in the fund industry has been the creation of a level playing field for all mutual funds operating in India. This happened in February 2003, when the UTI act was repealed. Unit Trust of India has no longer special status as established by an act of parliament. Instead, it has also adopted the same structure as any other fund in Indiaa trust and an asset management company. UTI mutual fund is now under the SEBI (Mutual Fund) Regulations, 1996 like all other mutual funds in India. UTI mutual fund is still the largest in the Indian fund industry. All SEBI complaint scheme of the erstwhile UTI are under its charge. All new schemes offered by UTI mutual fund are SEBI approved. Other schemes (US 64, Assured Return Schemes) of erstwhile UTI have been placed with a special undertaking administered by the government of India. These schemes are gradually wound up. 6) Sixth Phase-From 2004 onwards (Consolidation and Growth):The industry has lately witnessed a spate of mergers and acquisitions, most recent ones being the acquisition of schemes of Alliance Mutual fund by Birla Sun Life, Sun F& C Mutual Fund by Principal and PNB


Mutual fund by principal. At the same time, more international players continue to enter India, including Fidelity, one of the largest mutual funds in the world. The stage is set now for growth through consolidation and entry of new international and private sector players. As at the end of June 2009 there were 34 fund houses.

Fig:- Mobilization of mutual fund in India

Fig :- Assets under management in India


One is the specified undertaking of the Unit Trust of India with assets under management of Rs 29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The specified undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in march 2000 more than Rs.76, 000 crores of assets under management and with the setting up of a mutual fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. The graph indicates the growth of assets over the years.

NOTE: - erstwhile UTI was bifurcated into UTI mutual fund and the specified undertaking of the Unit Trust of India effective from February 2003. The asset under management of the specified undertaking of the Unit Trust of India has therefore been excluded from the total assets of the industry as a whole from February 2003 onwards.



Portfolio Diversification: - Mutual fund normally invests in well diversified portfolio of securities. Each investor in a fund is a part owner of all the funds assets. This enables him to hold a diversified investment portfolio even with a small amount of investment, which would otherwise require big capital. Professional management: - Even if an investor has a big amount of capital available to him, he benefits from the professional management skills brought in by the fund in the management of the investors portfolio. The investment management skills, along with the needed research available investment options ensure a much better return than what an investor can manage on his own. Few investors have the skills and resources of their own to succeed in todays fast moving, global and sophisticated markets. Reduction / Diversification of Risk: - An investor in a mutual fund acquires a diversified portfolio, no matter how small his investment. Diversification reduces the risk of loss, as compared to investing directly in one or two shares or debenture or other instruments. When an investor invest directly, all the risk of potential loss is his own. While investing in the pool of funds with other investors, any loss on one or two securities is also shared with other investors. This risk reduction is one of the most important benefits of a collective investment vehicle like mutual fund. Liquidity: - Often, investors hold shares or bonds they cannot directly, easily and quickly sell. Investment in a mutual fund, on the other hand, is more liquid. An investor can liquidate the investment by selling the units to the fund if it is open end fund, or by selling the units in the stock market if the fund is a close end fund, since close end fund have to list on stock exchange. In any case, the investor in a close end fund receives the sale proceeds at the end of a period specified by the mutual fund or the stock exchange. Flexibility & Convenience: - Mutual fund management companies offer many investor services that a direct market investor cannot get. Within the same fund family, investor can easily transfer/switch their holdings from one scheme to another. They can also invest or withdraw their


money at regular investors in open end schemes mutual fund investment process has been made further more convenient with the facility offered by the funds for the investors to buy or sell their units through the internet or emails or using other communication means. The investor also get updated the market information from the mutual funds. The information about the schemes is also shared by the fund managers in a transparent manner, with all material fact required by regulators to be disclosed to the investors. Reduction in Transaction cost: - With the help of mutual fund there is reduction in transaction cost as the investor can indirectly invest in many sector without paying the brokerage charge to the brokers. Safety of regulated environment: - Mutual fund industry is well regulated; all funds are registered with SEBI which lays down rules to protect the investors. Thus investors also benefit from the safety of a regulated investment environment. Choice of schemes: - In the mutual fund there are large numbers of schemes, having the different scheme being invested in different sector. The person can have the opportunity to invest in different sector through a single mutual fund as there are large numbers of diversified fund. The investor has the choice whether to choose open ended fund or closed ended fund according to their financial need. Transparency: - In India the mutual fund industry is regulated by SEBI, RBI and ministry of finance. SEBI acts as the capital market regulator, RBI acts as the money market regulator and the Ministry of finance as the securities appellate tribunal. The SEBI gives the guide line to the mutual fund industry and all the mutual fund has follow it. The mutual fund has to give its customers the audited financial reports annual and have to show them every aspect of their expenses.


DISADVANTAGE OF MUTUAL FUND: No control over Cost in the Hands of an Investor: - An investor in a mutual fund has no control over the overall cost of investing. He pays investment management fees as long as he remains with the fund, albeit in return for the professional management and research. Fees are usually payable as a percentage of the value of his investment, whether the fund value is rising or declining. A mutual fund investor also pays fund distribution costs, which he would not incur in direct investing. However this shortcoming only means that there is a cost to obtain the benefits of mutual fund services, and this cost is often less than the cost of direct investing by the investors. No tailor-made Portfolios: - Investors who invest on their own can build their own portfolios of shares, bonds and other securities. Investing through fund means he delegates this decision to the fund managers. High net worth individuals or large corporate investor may find this to be a constraint in achieving their objectives. However, most mutual funds help investor by overcome this constraint by offering families of schemes- a large number of different schemes-within the same fund. In each scheme there are various plans and options. An investor can choose from different investment schemes/plans/options and construct an investment portfolio that meets his investment objectives. Managing a Portfolio Funds: - Availability of a large number of options from mutual funds can actually mean too much choice for the investor. He may again need advice on how to select a fund to achieve his objectives, quiet similar to the situation when he has to select individual shares or bonds to invest in. Fortunately, India now has a large number of AMFI registered and tested fund distributors and financial planners who are capable of guiding the investors. Difficulty in selecting a Suitable Fund Scheme: - As there are a large number of mutual funds from different AMC having different schemes it became difficult for a simple man to select the mutual fund which could meet his financial objective as this would require a study of different mutual fund schemes. For this the investor requires an advice from the AMFI registered mutual fund advisor.


CATEGORIES OF MUTUAL FUND:Based on their structure Based on investmen t objectives


Mutual Funds Can Be Classified As Follow: Based on their structure:- On the basis of the structure of the mutual fund the mutual fund can be classified into following two types:1. OPEN ENDED FUNDS 2. CLOSE ENDED FUNDS 1) OPEN ENDED FUNDS:- In an open ended fund, the fund is all the time ready to sell new units and repurchase issued units. An investor can buy or redeem units from the fund itself at a price based on the net asset value (NAV) unit. 2) CLOSE ENDED FUNDS:- A close-end fund makes a one-time sale of a fixed number of units. Units are redeemed upon maturity of the scheme. Except at maturity and special buy-back offer periods, it does not allow investor to redeem units directly from the funds. However, to provide the much needed liquidity to investors, closed-end funds are listed on stock exchange. Based On Their Investment Objective:Equity funds: - These funds invest in equities and equity related instruments. With fluctuating share prices, such funds show volatile performance, even losses. However, short term fluctuations in the market, generally smoothens out in the long term, thereby offering higher returns at relatively lower volatility. At the same time, such funds can yield great capital appreciation as, historically, equities have outperformed all asset classes in the long term. Hence, investment in equity funds is considered for a period of at least 3-5 years. It can be further classified as:i) Index funds: - In this case a key stock market index, like BSE Sensex or Nifty is tracked. Their portfolio mirrors the benchmark index both in terms of composition and individual stock weight ages. Equity diversified funds: - 100% of the capital is invested in equities spreading across different sectors and stocks.




Dividend yield funds: - It is similar to the equity diversified funds except that they invest in companies offering high dividend yields. Thematic funds: - Invest 100% of the assets in sectors which are related through some theme. e.g. - An infrastructure fund invests in power, construction, cement sectors etc. Sector funds: - Invest 100% of the capital in a specific sector. E.g. A banking sector fund will invest in banking stocks. ELSS: - Investment in these schemes entitles the investor to claim an income tax benefits up to Rs. 1 lakh under section 80c of the Income Tax Act, but usually has a lock-in period before the end of which funds cannot be withdrawn.




Balanced fund: - Their investment portfolio includes both debt and equity. As a result, on the risk-return ladder, they fall between equity and debt funds. Balanced funds are the ideal mutual funds vehicle for investors who prefer spreading their risk across various instruments. Following are balanced fund classes:i) ii) Debt-oriented funds: - Investment below 65% in equities. Equity-oriented funds: - Investment at least 65% in equities, remaining in debt.

Debt fund: - They invest only in debt instruments, and are a good option for investors averse to idea of taking risk associated with equities. Therefore, they invest exclusively in fixed-income instruments like bonds, debentures, Government of India securities; and money market instruments such as certificates of deposit (CD), commercial paper (CP) and call money. The debt funds can be classified into following types:i) Liquid funds: - These funds invest 100% in money market instruments, a large portion being invested in call money market.


ii) iii)

Gilt funds: - They invest 100% of their portfolio in government securities and treasury bills. Floating rate funds:-They invest in short-term debt papers. Floaters invest in debt instruments which have variable coupon rate. Arbitrage fund: - They generate income through arbitrage opportunities due to mispricing between cash market and derivatives market. Funds are allocated to equities, derivatives and money market and derivatives and money markets. Higher proportion (around 75%) is put in money markets, in the absence of arbitrage opportunities. Income funds: - Typically, such funds invest a major portion of the portfolio in long-term debt papers. MIPs: - Monthly Income Plans (MIPs) have an exposure of 70%-90% to debt and an exposure of 10%-30% to equities. FMPs: - Fixed Monthly Plans (FMPs) invest in debt papers whose maturity is in line with that of the fund.



vi) vii)




Fig:-Risk Return Matrix



mutual funds are called investment companies. In UK open-ended funds are called unit trusts and close-ended fund are called investment trusts. In India mutual funds are established as trusts and fall under regulatory jurisdiction of SEBI. In India the mutual fund has 3-tier structure. Unit holders are the beneficial owners of the net assets of the mutual fund scheme. In India the main constituents of mutual fund are as follows:-

1) Sponsor: - Sponsor (the first tier) who thinks of starting a mutual fund. The sponsor approaches the Securities & Exchange Board of India (SEBI), which are the market regulator and also the regulator for mutual funds. SEBI checks whether the person is of integrity, whether he has enough experience in the financial sector, his net worth etc. The minimum qualification for a sponsor is that he must have firm financial track record for 5 years and as well the contribution of 40% net worth of AMC. The sponsor appoints the trustees, AMC and custodian.


2) Trust: - Once the SEBI is convinced, the sponsor creates a public trust (the second tier) as per the Indian Trust Act, 1882. Trusts have no legal identity India and cannot enter into contracts, hence the trustees are the people authorized to act on behalf of the trust. Contracts are entered into the name of the trustees. Once the trust is created, it is registered with SEBI after which this trust is known as the mutual fund. All mutual fund schemes are to be approved by trustees. The trustee has the right to dismiss AMC (with SEBI approval). The trustees receive fees for service rendered. They must furnish half-yearly report to SEBI on fund activities. 3) Asset Management Company: - The Asset Management Company (AMC), to manage investors money. The AMC in return charges a fee for the services provided and this fee is borne by the investors as it is deducted from the money collected from them. The AMCs Board of Directors must have at least 50% of Directors who are independent directors. The AMC has to be approved by SEBI. The AMC functions under the supervision of its Board of Directors, and also under the direction of the trustees and SEBI. The AMC should have a net worth of Rs 10 cr. all the time. AMC have to submit quarterly report to SEBI on activities and must comply with SEBI regulations. Other Fund Constituents:4)Custodian: - A custodian role is safe keeping of physical securities and also keeping a tab on the corporate actions like rights, bonus and dividends declared by the companies in which the fund has invested. The custodian is appointed by the Board of trustees. The custodian also participates in a clearing and settlement system through approved depository companies on behalf of mutual funds, in case of dematerialized securities.


5) Transfer agents: - They issue and redeem units on behalf of the fund. The other related services of transfer agents such as preparation of transfer documents and updating investor records. 6) Distributors: - They are appointed by AMC and act on behalf of different funds. The independent individuals are appointed as agents and they should be registered with AMFI.


Net Asset Value: - Net Asset Value is the market value of the assets of the
scheme minus its liabilities. Per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. Receivables + Accrued income (Liabilities+ A. Liabilities) NAV = ----------------------------------------------------------------Number of outstanding share or Units

Sale Price: -It is the price when an investor invests in a scheme which is also
called as Offer Price. It may include a sales load.

Repurchase Price: - It is the price at which a close-ended scheme

repurchases its units and it may include a back-end load. This is also called Bid Price.

Redemption Price: - It is the price at which open-ended schemes repurchase their units on maturity. Such prices are NAV related. Sales Load: - It is a charge collected by a scheme when it sells the units
which is also called, Front-end load. Schemes that do not charge a load are called No Load schemes


Repurchase or Back-end Load: - It is a charge collected by a scheme

when it buys back the units from the unit holders.

Systematic Withdrawal Plan (SWP): -Such plans allow the investor to

make Systematic Withdrawals from his fund investment account on a periodic basis, thereby providing the same benefit as regular Income.

Systematic Transfer Plan (STP): - These plans allow the investor to

transfer on a periodic basis a specified amount from one scheme to another within the same fund family, or in other word, a specified amount will be invested in (periodically) in one scheme which could be an investment benefit of other Scheme.

Systematic Investment Plan (SIP): - It is the process of investing

regularly at fixed intervals, say, monthly, quarterly, annually. Works like a Recurring Deposit A/c. This process of investment vehicle allows an investor to build wealth over a long period of time and get the benefit of compounding of returns. The investor need not keep track over the portfolio nor does he have to worry about timing the market. Continuous investment through SIP provides an average benefit to an investor even at the time of too much volatility of equity market. As an example

Investme nt period 2nd March 2nd April 2nd May 2nd June 2nd July Total

Fix Investme nt 1000 1000 1000 1000 1000 5000

NAV on Date Allotted Units 11 13 9 15 10 58 90.91 76.92 111.11 66.67 100.00 445.61


Average Unit Price: Sum of NAVs --------------------No. Of investment Average unit cost: Total Investment -------------------------Total units allotted

= 11.60

= 11.22

So from this calculation we can say that an investor will be always in profit Side when he chooses the option of SIP.

Performance Measures of Mutual Funds The Soul of Mutual Fund Analysis

Mutual Fund industry today, with about 33 players and more than six hundred schemes, is one of the most preferred investment avenues in India. However, with a plethora of schemes to choose from, the retail investor faces problems in selecting funds. Factors such as investment strategy and management style are qualitative, but the funds record is an important indicator too. Though past performance alone cannot be indicative of future performance, it is, frankly, the only quantitative way to judge how good a fund is at present. Therefore, there is a need to correctly assess the past performance of different mutual funds. Worldwide, good mutual fund companies over are known by their AMCs and this fame is directly linked to their superior stock selection skills. For mutual funds to grow, AMCs must be held accountable for their selection of stocks. In other words, there must be some performance indicator that will reveal the quality of stock selection of various AMCs.


Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme, it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. Risk associated with a fund, in a general, can be defined as variability or fluctuations in the returns generated by it. The higher the fluctuations in the returns of a fund during a given period, higher will be the risk associated with it. These fluctuations in the returns generated by a fund are resultant of two guiding forces. First, general market fluctuations, which affect all the securities, present in the market, called market risk or systematic risk and second, fluctuations due to specific securities present in the portfolio of the fund, called unsystematic risk. The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns of the fund. Systematic risk, on the other hand, is measured in terms of Beta, which represents fluctuations in the NAV of the fund vis--vis market. The more responsive the NAV of a mutual fund is to the changes in the market; higher will be its beta. Beta is calculated by relating the returns on a mutual fund with the returns in the market. While unsystematic risk can be diversified through investments in a number of instruments, systematic risk cannot. By using the risk return relationship, we try to assess the competitive strength of the mutual funds vis--vis one another in a better way.

In order to determine the risk-adjusted returns of investment portfolios, several eminent authors have worked since 1960s to develop composite performance indices to evaluate a portfolio by comparing alternative portfolios


within a particular risk class. The most important and widely used measures of performance are given which is the soul of Mutual Funds:-

Beta Standard Deviation R-Square Treynor Measure Sharpe Measure Sortino Ratio Fama Model P/E Ratio Expense Ratio BETA:Beta is a measure of a funds sensitivity to market movements but this does not give an indication of how much an investor has gained by taking the risk of investing in equities. A beta of 1 implies that a funds returns will move in exact tandem with the markets. This means that if the market gains 10%, the fund will also gain 10%. Funds having a beta of greater than one will exhibit greater volatility than the market. If a fund has a beta of 1.2 then a ten percent up move in the index will bring about a 12%increase in the funds NAV. This correlation will also apply on the downside. In a bull market it is more advantageous to have a fund with a beta higher than one, as the fund would provide greater returns than the benchmark. Conversely in falling markets it is better to have funds with a beta lower than one. Funds having defensive portfolios will usually have a beta of less than one. Such funds gain less than the benchmark on the upside but are


better able to protect the returns. Investors who are actively tracking the market and their fund do better with a higher beta fund whereas investors not actively managing their equity funds can consider lower beta funds as the exit decision can be taken at a more leisurely pace. BETA is calculated as, BETA = COV(X, Y)/VAR (Y) COV(X, Y) = (X-AVG X) (Y-AVG Y)/(N-1) VAR (Y) = (Y-AVG Y) ^2/(N-1) Where, X is returns of the fund Y is returns of the benchmark

STANDARD DEVIATION:The standard deviation is often used by investors to measure the risk of a stock or a stock portfolio. The basic idea is that the standard deviation is a measure of volatility: the more a stock's returns vary from the stock's average return, the more volatile the stock

R-SQUARE:While beta gives an idea about the degree of movement of a fund against the market, R-square measures the funds co-relation to the benchmark. R-square ranges between 0 to 1.A R-square value of 1 indicates a perfect correlation with the index while the value of zero shows that factors other than the market movements are influencing the returns. The beta of a fund with a very low R-squared is not meaningful since the portfolio would have an extremely low correlation with the market index. As with all performance indicators, R-square and Beta are based on past performance. These give an indication of the funds future performance but it is not necessary that this will happen.


TREYNOR MEASURE :Developed by Jack Treynor, this performance measure evaluates funds on the basis of Treynor's Index. This Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be the return on securities backed by the government, as there is no credit risk associated), during a given period and systematic risk associated with it i.e., beta. Symbolically, it can be represented as: Treynor's Index (Ti) = (Ri - Rf)/Bi. Where, Ri represents return on fund, Rf is risk free rate of return and Bi is beta of the fund. All risk-averse investors would like to maximize this value. While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative Treynor's Index is an indication of unfavorable performance.

SHARPE MEASURE:In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a ratio of returns generated by the fund over and above risk free rate of return and the total risk associated with it. According to Sharpe, it is the total risk of the fund that the investors are concerned about. So, the model evaluates funds on the basis of reward per unit of total risk. Symbolically, it can be written as: Sharpe Index (Si) = (Ri - Rf)/Si Where, Si is standard deviation of the fund. While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.


FAMA MODEL:The Eugene Fama model is an extension of Jensen model. This model compares the performance, measured in terms of returns, of a fund with the required return commensurate with the total risk associated with it. The difference between these two is taken as a measure of the performance of the fund and is called net selectivity. The net selectivity represents the stock selection skill of the fund manager, as it is the excess return over and above the return required to compensate for the total risk taken by the fund manager. Higher value of which indicates that fund manager has earned returns well above the return commensurate with the level of risk taken by him. Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf) Where, Sm is standard deviation of market returns. The net selectivity is then calculated by subtracting this required return from the actual return of the fund.

SORTINO RATIO:The ratio was created by Brian M. Rom in 1986 as an element of Investment Technologies The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target, or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally. It is thus a measure of risk-adjusted returns that is demonstrably more accurate than the Sharpe ratio. The ratio is calculated as: ,


Where R is the asset or portfolio realized return; T is the target or required rate of return for the investment strategy under consideration, (T was originally known as the minimum acceptable return or MAR); DR is the downside risk. Thus, the ratio is the actual rate of return in excess of the investor's target rate of return, per unit of downside risk.

PRICE-EARNINGS RATIO:The P/E gives you an idea of what the market is willing to pay for the companys earnings. The higher the P/E the more the market is willing to pay for the companys earnings. A high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. In case of mutual funds, the P/E ratio is the weighted average of all the stocks' P/E ratios in the mutual fund's portfolio. Conversely, a low P/E may indicate a vote of no confidence by the market Known as value stocks, many investors made their fortunes spotting these diamonds in the rough before the rest of the market discovered their true worth. The price/earnings (P/E) ratio of an individual stock can give you some idea about the riskiness of that fund relative both to its benchmark and to other funds.

P/E RATIO (price multiple) is calculated as: P/E RATIO=Market Value per Share/Earnings per Share (EPS)


EXPENSE RATIO:Mutual fund fees and expenses are charges that may be incurred by investors who hold mutual funds. Running a mutual fund involves costs, including shareholder transaction costs, investment advisory fees, and marketing and distribution expenses. Funds pass along these costs to investors in a number of ways. Some funds impose "shareholder fees" directly on investors whenever they buy or sell shares. In addition, every fund has regular, recurring, fund-wide "operating expenses." Funds typically pay their operating expenses out of fund assets which mean that investors indirectly pay these costs. Among the above performance measures, two models namely, Treynor measure and Jensen model use systematic risk based on the premise that the unsystematic risk is diversifiable. These models are suitable for large investors like institutional investors with high risk taking capacities as they do not face paucity of funds and can invest in a number of options to dilute some risks. For them, a portfolio can be spread across a number of stocks and sectors. However, Sharpe measure and Fama model that consider the entire risk associated with fund are suitable for small investors, as the ordinary investor lacks the necessary skill and resources to diversify. Moreover, the selection of the fund on the basis of superior stock selection ability of the fund manager will also help in safeguarding the money invested to a great extent. The investment in funds that have generated big returns at higher levels of risks leaves the money all the more prone to risks of all kinds that may exceed the individual investors' risk appetite. For the risk-return analysis of mutual funds, the following parameters are considered annual fund returns, Beta, Sharpe Measure, Treynor Measure, Jensen Measure and Alpha.


Chapter 2 Company Profile


History of Franklin Resources, Inc.

Franklin Templeton Investments has grown from being recognized as one of the best small companies in America to being considered a premier global investment management organization. It offers clients a valuable perspective shaped by giving six decades of experience, investment expertise and growing global reach.

The company was founded in 1947 in New York by Rupert H. Johnson, Sr., who ran a successful retail brokerage firm from an office on Wall Street. He named the company for U.S. founding Father Benjamin Franklin because Franklin epitomized the ideas of frugality and prudence when it came to saving and investing. The companys first line of mutual funds Franklin Custodian Funds was a series of conservatively managed equity and bond funds designed to appeal to most investors.

After Rupert Sr. retired, his son Charles B. Johnson (Charlie) took over as president and chief executive officer in 1957 at age 24. There were only a handful of employees at that time and the funds had total assets under management of $2.5 million. Franklin was swimming against the tide because insurance companies dominated the middle class investing markets, but Charlie was convinced that he has a good story to tell.


By the early 1960s Charlie and his teams persistence was paying off and the company was growing albeit slowly. It was a struggle to keep up with the day-to-day demands of the business and Charlie continued to wear many hats-mutual fund manager, wholesaler accountant. Rupert Johnson, Jr., Charlies brother, joined the company in 1965 and also took on multiple roles. A decade of extreme bull and bear cycles, the 1960s was an exciting time to be in the industry.

Franklin went public in 1971, which gave Charlie and team the capital needed to grow the business and position it for the future. In 1973, the company acquired Winfield & Company, a San Mateo, California-based investment firm, and moved Franklins offices from New York to California. The combined organization had close to $250 million in assets under management and approximately 60 employees. In 1979, Franklin MoneyFund began a growth surge that made it Franklins first billion-dollar fund and launched the companys tremendous asset growth in the 1980s.


Starting in 1980, the companys total assets under management doubled (or nearly doubled) every year for the next six years. The companys stock began trading on the New York stock Exchange. In the same year, the company opended its first office outside in North America in Taiwan. In 1988, Franklin acquired L.F.Rothschild Fund Management Company. Assets under management for Franklin grew from just over $2 bllion in 1982 to more than $40 billion in 1989 ( the crash of 1987 had little impact on Franklins income and bond funds). Not one to rest on their laurels, management was concerned about Franklins heavy emphasis on fixed income investments that had become companys bread and butter.

Strategic acquistions in the 1990s helped Franklin diversify its investment management capabilities beyond fixed income and also expand its global footprint throughout Europe and Asia. In 1992, after striking a deal with famed global investor Sir John Templeton for acquistion of Templeton, Galbraith & Hansberger Ltd., Charlie was named Fund Leader of the Year for spreading waht was then the largest mutual fund company in history. Templeton gave the compant a strong portfolio of international equity funds as well as the expertise of emerging markets guru Dr. Mark Mobius, who currently leads a team of emerging market analysts and


manages emerging market portfolios. Dr. Mobius has spent more than 30 years working in emerging markets all over the world. Then in 1996, in an effort to broaden its line of domestic equity products, Franklin Templeton bought Heine Securities corporation, investment advisor to Mutual fund series,Inc., from Wall Street icon Michael Price.

Several more key acquisitions solidified the companys position as a premier global investment management organization:- Bissett in 2000, Fiduciary Trust in 2001 and Darby in 2003. In 2005, Gregory E. Johnson (Greg), Charlies son, became chief executive officer, assuming overall responsibility for leading Franklin Templeton Investments. Greg had grown up in the business and worked his way through the organization beginning on the trading desk at age 24 in 1985. Charlie retained his role as chairman and continued to provide guidance to Greg and his leadrship team.

Franklin Templeton Investments

Type Founded Headquarters Key people Public company, Industry, Financial Services New York, NY San Mateo, CA Charles B. Johnson, Chairman, Greg Johnson, CEO Rupert Johnson, Jr., Vice Chairman Mutual funds, Retirement Planning $6.02 Billion USD (2008) $1.588 Billion USD (2008) 8,233 (March 2009) [

Products Revenue Net income Employees Website

Fig: - Franklin Templeton Headquarters In San Mateo


Franklin Templeton office worldwide:(Updated as on 30th April 2009)

Bangalore Beijing Chennai Dubai Ho Chi Minh City Hong Kong Hyderabad Kolkata Kuala Lumpur Mumbai New Delhi Seoul Shanghai Singapore Tokyo

Cape Town Johannesburg

Melbourne Sydney


Amsterdam Dublin Edinburgh Frankfurt Geneva Istanbul London Luxembourg Madrid Milan Moscow Paris Poznan Stockholm Vienna Warsaw Zurich

North America
Calgary Edmonton Fort Lauderdale Fort Lee Halifax Los Angeles Mexico City Miami Montreal Nassau New York City Norwalk Rancho Cordova Salt Lake City San Mateo Short Hills St. Petersburg Toronto Vancouver Washington, DC Wilmington Winnipeg

South America
Buenos Aires Rio De Janeiro Sao Paulo


Franklin Templeton India

Franklin Templetons association with India dates back to more than a decade as an investor. As part of the groups major thrust on investing in markets around the world, the India office was set up in 1996 as Templeton Asset Management India Pvt. Limited. It flagged off the mutual fund business with the launch of Templeton India Growth Fund in September 1996, and since then the business has grown at a steady pace.

Corporate details
Franklin Templeton Investment India or Franklin Templeton International Services, part of the diversified Franklin Templeton Investments. Hyderabad now has emerged as their single largest center outside its US facility near California. Franklin Templeton Investment India to open new shops in Chennai and Mumbai also. Franklin Templeton Investment India to expand its IT services arm based in Hyderabad, with an investment of at least $18 million. The company has moved on to a $40-million facility, which has the capacity to host some 1,800 people, and announced plans to take up work on the phase II of the project to host 1,000 more, with an investment of $18 million. Franklin Templeton Investment India manages investment vehicles for individuals, institutions, pension plans, trusts, partnerships and other clients. Further, the Franklin Templeton Investment India activity in India relates to transaction processing, data and risk management, equity research and net asset valuations. Moreover, they also focus on grooming people on to career path of investment management professionals. Franklin Templeton Investment India has Rs 31,962-crore plus Assets under Management, handling over 1 million investor accounts. They are exploring more areas for off -shoring going forward. The Group, with over $552.9 billion (which is more than all banks put together in India) in assets under management. Franklin Templeton Investment India offers immense scope for growth. About $5 billion has been invested by Indian investors in schemes of Franklin Templeton and they in turn invested about $6 billion in India for its global investors in securities.

Performance:The group of Franklin Templeton Investment India has registered operating revenues of Rs 30,505 crores and net income of 8,031 crores.


Organization:The Franklin Templeton Investment India Parent Company is headed by Mr. Greg Johnson, President and Chief Executive Officer. Franklin Templeton Investment India employs around 1,100 personnel.

A long-term commitment:-

Since starting its operations in India, Franklin Templeton has invested a considerable amount of time, effort and resources towards investor and distribution education, the belief being to be successful in the long term, the fundamentals need to be corrected, at whatever cost! This resulted in various advertising campaigns aimed at educating investors, participation in seminars and distributor training programs. Franklin Templeton has played a pivotal role in steering the industry to its current stage, and as long term players, it has continue to achieve the objective of making mutual funds an investment of choice for both individual and institutional investors. In July 2002, Franklin Templeton India acquired Pioneer ITI; another leading fund houses In India to create an organization with rich investment experience over market cycles, one of the most comprehensive product portfolios, footprint across the country and an inhouse shareholder servicing function. The huge synergies that existed in the two organizations have helped the business to grow at a rapid pace, catapulting the company to among the top two fund houses in India. Franklin Templeton Vision: - To be the premier global investment management organization by offering high quality investment solutions, outstanding service and attracting, motivating and retaining talented individuals.


Franklin Templeton Investment Philosophy

Franklin Templeton investment philosophy that follows a disciplined approach to investing with a strong focus towards process orientation is the common thread running through all schemes. The key guiding principle to Franklin Templeton investment philosophy is - maximize the risk- adjusted returns for our investors in the respective asset classes, and create wealth for them over the long-term. Franklin Templeton has successfully demonstrated the ability to achieve this in the past, and is confident that our process-oriented investment approach will help us sustain the same in the years to come.

While broad economy and sector trends serve as a broad guideline, Franklin Templeton portfolio managers are essentially 'bottom-up' investors, focusing more on individual stocks and their potential to deliver long term capital appreciation. The emphasis is more on in-house research and looking beyond published reports, as often there is more to a company's story than numbers alone reveal. While quantitative analysis using proprietary research model serves as a first stage filter, the research team and portfolio managers speak with key management and observe operations onsite to get a meaningful insight into a company's ability to translate vision into reality.

The overall objective is to minimize both liquidity and credit risk. Our fixed income team looks to arrive at a general maturity/duration range for the portfolio in relation to the market based on its interest rate outlook, which is arrived after a rigorous and close monitoring of various macro variables. The shifts within this range are then determined by short term cyclical trends in the economy. They look to manage interest rate risk across different asset class and duration buckets, in order to optimize risk-adjusted returns. All the investment options are thoroughly analyzed to ensure that credit risk is kept at the minimum level. Any major shifts in portfolio strategy are based on longterm trends, as opposed to short-term aberrations in interest rates.


Fundamental Approach
Our investment decisions are guided more by what we believe in, less by what the market thinks. That is the reason once we buy into a stock, or take a maturity position in a debt portfolio based on our fundamental research and analysis, we stick to our position without paying heed to market rumors and whisper estimates. We believe that while technicals can rule the roost in the short term, it is the fundamentals that prove rewarding over time.

Long Term Orientation

Franklin Templeton's portfolio managers are strong believers in consistently delivering good performance. The key word is consistency. We believe that it is not important to be top performer at any time and we attach more importance to being among the top quartile in the peer group consistently, and this requires taking a long-term view, even at the cost of temporary underperformance.

Team Approach
While individual portfolio managers are the ultimate decision makers for the scheme they manage, the belief is that working together can achieve greater results than acting alone. That is why every stock that is researched by the analysts is discussed intensively at regular investment team meetings, and the analysis is available to all investment team members on a common platform. Moreover, the high degree of interaction between investment team members across the globe helps share and learn from each other's experience and expertise. The regular awards and top ratings accorded to Franklin Templeton schemes are recognition of the consistently superior performance across asset classes, and through market and economic cycles. They also reflect Franklin Templeton's long cherished values of choosing the long-term, disciplined and team approach to managing its funds and business.


Getting started
The old adage, "Don't put all your eggs in one basket, "isn't just a clich. But with so many investment options, where do you start?

Start with your financial needs

People have different investment needs depending on their financial goals, tolerance for risk and time framewhen they need the money they invested. Our mutual funds are created with these needs in mind-we start with you. Before you choose investments, think about your financial goals, risk tolerance and time frame. Then choose investments that match them The investment pyramid At Franklin Templeton we offer a wide variety of mutual fund options to meet the equally wide variety of investment needs of our investors. The investment pyramid below shows fund categories that are suitable for different time frames, with the longest time frames at the top and the shortest at the base of the pyramid.


Location in India where Franklin Templeton branches are located:-

Franklin Templeton Investment India corporate office in India is located at

Corporate office
4th floor, Wockhardt Towers, Bandra Kurla Complex, Bandra (East), Mumbai 400 051 India


Financial Planning & Mutual Fund



Financial Planning: - Financial planning is an exercise aimed at identifying
all the financial needs of an individual, translating the needs into monetarily measurable goals at different times in the future, and planning the financial investments that will allow the individual to provide for and satisfy his future financial needs and achieve his lifes goals. The objective of financial planning is to ensure that the right amount of money is available in the right hands at the right point in the future to achieve an individuals financial goal. Successful financial planning makes considerable contribution to the sum total of human happiness. Financial planning is a process that helps a person work out where he or she is now, what he/she may need in the future and what he/she must do to reach the financial goals. The process involves gathering relevant information, setting life goals, examining the persons current financial status and coming up with a strategy or plan for how the person can meet his/her goals given the persons current situation and future plans. The need for financial planning persists throughout the whole life of an individual. Most people have at least one unsatisfied need at any time. Most people have at least one unsatisfied need at any time. Most people will have both financial protection and investment needs simultaneously throughout life. However, the priorities of these financial needs change as people grow older and their personal circumstances change. To appreciate how these changes come about, financial planners uses the life cycle stage. The life cycle of any individual can be typically sub-divided into the following stage:1) Childhood stage 2) Young Unmarried stage 3) Young Married stage 4) Young Married with Children Stage 5) Married with Older Children Stage 6) Post-family/Pre-retirement Stage 7) Retirement stage


1) Childhood stage: - The childrens financial needs are met by parents or other relatives. Most of the basic requirements of children are met from the income of parents or relatives. However, most people who want to give their children more privileged opportunities will have to start investing money for this purpose when their children are still young. Hence, the main need for children may be to invest cash gifts to provide a lump sum when they are adults. The parents or guardians make even these arrangements until the children reach adulthood. 2) Young Unmarried Stage: - If they are single with no dependents, they have little need for life assurance products. Normally, the main protection need of a young single person in work is to protect his or her earnings against disability resulting from injury or long-term sickness. Young unmarried persons will also have considerable investment needs. They may wish to invest in equities as they have a longer time horizon and as a result a higher risk appetite. They may also wish to take out a long term saving plan. It is never too early to start contributing to a


pension scheme, which will provide an income on retirement; the earlier

the scheme starts the lower the annual cost will be. However, most young people will have relatively low incomes and cannot afford to devote large amounts to financial planning. Also, the young person may already have more urgent short term needs, such as saving up to marry and establish a home. Thus, money should normally be devoted to long-term plans only when adequate short-term savings have been set aside. 3) Young Married stage: - A young couple becomes interdependent with a shared responsibility for the achievement of future goals. Both partners may work and contribute to the family income or one may be in paid employment with the other looking after the family home. a) Where both partners work, they have two incomes to meet the burden of their costs. Although each of them will often still be fairly low on the earning scale, they should have sufficient surplus funds to meet their most important financial needs. Since the couple depends on two incomes, the loss of one income would be a serious blow to their domestic economy. The priority need is therefore to protect each of their incomes against loss through disability resulting from injury or long term sickness. b) If only one of the partners earns the family living, their financial planning priorities will be different. The death of the wage earner would deprive the non-working partner of family income and therefore there is a need for life assurance on the earning members life. The sum assured should be sufficient to replace a large part of their earnings, possibly for the rest of the surviving partners life. Also, with only one working partner, the need to start pension provision early is greater, should the money available to pay for it. 4) Young Married with Children Stage: - The arrival of children very quickly changes the financial situation of any young couple. This a difficult stage as expenditure is rising at a faster rate than income. This will reduce the money available to spend as a financial planning but the protection needs of the family will increase greatly. A substantial life assurance on the wage earners life is now absolutely necessary. Precisely how much cover is needed will depend on the familys


standard of living and the age at which children are expected to complete their education. Once protection needs are taken care of, the family will have to make provisions for investments. These investment needs could take various forms. The most common are saving for childrens education and marriage. To achieve these objectives for their children, the parents may have to start investing from the day the child is born. Additional investment needs are saving for a house, car, holidays and most importantly, adequate provisions for retirement. 5) Married with older Children stage: - By this stage, the parents are approaching mid-career and their incomes would have usually have increased. With improving finances, the family lifestyle will have improved and become more affluent. The parents financial planning priorities would also be changing from available protection needs to investment needs. There are normally two reasons for investment considerations becoming of paramount importance. Firstly, the couple may be raising loans or may have raised loans for a house, cars or childrens education. Plans have to be made to service these loans and repay capital. Perhaps, most importantly, pension provision to provide an income in retirement is becoming absolutely crucial by this stage. The term to retirement is becoming shorter. The annual investment required to fund a good pension is growing with every year of delay. If adequate contributions do not start now, it may become impossible to build a sufficient fund to buy a pension that maintains the family standard of living. 6) Post Family/Pre-Retirement Stage: - The children may have become financially independent by now and the need to protect them against the financial consequences of parental death disappears. The parents may have now reached the peak of their earning power. If they did take out 10-or 20-year investment plans when they were younger, these will now make capital sums available for them to spend or invest. It is also their last opportunity to ensure they will have adequate income to preserve their standard of living in retirement. In this stage, people need to maximize investment into pension products. At this stage, most stage, most people start experiencing some form of sickness or the onset of a disease. Hence, protection from disability from health related problems increase. On the life assurance side, one or both partners may


still need financial protection against the effect of the others death, and this protection may well be needed for the rest of their lives. 7) Retirement Stage: - Most people would like to maintain the same standard of living in retirement as they did when they worked. It is a thumb rule that people need an annual retirement income equal to twothirds of their final years income from employment. Unfortunately, very few people are able to achieve this target. Most are able to achieve only 20% or less of their pre-retirement earnings. After retirement, the value of these incomes is often further reduced by inflation. By the time people reach retirement they fall into one of three categories:a) Low pension income and little capital with which to supplement it: - There is little a financial planner can do to help the aged people who have low income and very little capital. The unfortunate pensioner will have to either continue working to earn a living or depend on others or the government for support. The prime need in this case would be for whatever fixed income can be produced from investments, with capital fully protected. b) Relatively low pension income plus some accumulated capital: - These people need to invest their capital to produce additional income. They cannot afford to take even the least risk, as this capital will support them for the rest of their lives. Most people will need an annuity or a regular income plan to meet their expenses. c) Sufficient pension income plus substantial assets and capital: - These are the fortunate people who had the foresight to plan early. Their main need would be to preserve the real value of their investments against inflation. They can afford to apportion some capital to higher-risk, higher-return investments to pass accumulated assets to their children.


Constraints to Financial Planning: - There is several constraints

people face in financial planning. The foremost among the constraints is insufficient investible resources. Though people need to start planning early in life, many individuals have inadequate resources available during their younger years. Under the circumstances, a monthly budget statement goes a long way towards achieving the financial discipline necessary to decrease discretionary expenses and increase savings. Another constraints lies within financial planning products themselves. There may be a dearth of appropriate financial products to meet some peoples special needs. Or financial products, especially insurance products, may be available only to people within given age limits or satisfying health-related criteria. The two most important constraints on investments to meet predictable needs are time and risk. Time is important to benefit from the power of compounding by starting early. Different investments carry different levels of risk. The basic principle of investing is the greater the risk, the greater the reward. No matter how attractive the potential returns on speculative investments, they are not for people who cannot afford to lose money. This is particularly true of the aged who no longer have the earning capacity to replace their losses. Although the life cycle model is useful to understand the benefits of financial planning, it is only a model. It operates on a number of fixed assumptions that may apply to many but not all situations. Some peoples lives do not fit into the life cycle pattern. Some people will be permanent invalids, others may never marry or set up home and some, by chance or design, will never have children. In some occupations people will retire early, much like our cricketers. More common, however, are the life cycle changes produced by the stress of modern living. Marital breakup is perhaps the most common of these changes. Divorce is a distortion of the life cycle model and will result in radically different financial planning needs. We saw earlier that people need to protect their spouses and families against the possibility of their early death. Yet early death is itself a distortion of the life cycle pattern creating new needs for the surviving widows or widowers. Forced early retirement from the job is another example of a situation that can upset financial planning of an individual, particularly if he has significant financial obligations.


Financial planning and Mutual Funds:On the whole, despite these constraints, financial planning offers to most people significant benefitsincluding peace of mind and happiness. Unaided, most people find it difficult to identify and accept their financial needs. It is for this reason that a financial planner is one of the most respected professions in the developed countries. It is for the same reason that financial planning profession is now emerging to be important in India. After all, financial health is an important as physical and spiritual health, and people should approach a financial planner who can advise them on achieving financial fitness. Generally people have two types of financial needs protection and investment. Insurance companies seek to offer products for protection needs. Mutual funds broadly cater to the investment needs. Mutual fund products form a powerful set of tools available to financial planners and investors. Hence, it is in the fitness of things that those individuals who are in the business of disturbing fund products also learn how to help investors do appropriate financial planning before making investment decisions. Stocks, bonds Investment experts recommend growth investments such as stocks and stock funds for long-term goals, where you won t need to sell your investment for 5 years or more. For short-term goals, where you might sell your investment in 1 year or less, they recommend fixed income funds and other liquid investments. Of course, their specific recommendations will depend on your comfort with risk. Money market instruments-as an investor, you have a wide variety of choices, and it would be difficult to find one type of investment vehicle that effectively takes advantage of all of today investment options. That's why you may want to consider diversifying your portfolio over a variety of investment vehicles as mutual funds do for you.


Model portfolio: - In preparing an investing program, the investor or the

advisor would have to deal with investors at different stages of their life cycle and therefore with different needs. Each type of investor should have some typically suitable model portfolio. There are four model portfolio of general applicability and the mutual fund distributors in India are well-advised to consider them as the basis to develop similar model portfolios for Indian mutual fund investors.


Recommended Model Portfolio

1) Young, Unmarried professional ---- 50% in Aggressive Equity Funds -25% in High Yield Bond Funds, and Growth and Income funds -25% in Conservative Money Market Funds 2) Young Couple with Two Incomes----10% in Money Market and two children -30% in Aggressive Equity Funds -25% in High Yield Bond Funds, and Long Term Growth Funds -35% in Municipal Bond Funds 3) Older couple, single Income -----30% in short-term municipal Funds -35% in long-term Municipal Funds -25%in moderately Aggressive Funds -10% in Emerging Growth Equity -----35% in conservative Equity Funds For capital preservation/income -25% in moderately Aggressive Equity For modest capital growth -40% in Money Market Fund

4) Recently Retired Couple

A good exercise will be to find the Indian mutual fund equivalent recommendations for Indian investors, using the above guide.


Risk associated to fixed income bearing securities

Interest rate risk: As with all the securities, changes in interest rates may affect the schemes Net Asset Value as the prices of the securities generally increase as interest rates decline and generally decrease as interest rates rise. Prices of long-term securities generally fluctuate more in response to interest rates changes then do short term securities. Indian Debt markets can be volatile leading to the possibility of price movements p or down in the fixed income securities and thereby to the possible movements in the NAV.

Liquidity or marketable risk: 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.

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 those risks 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. Business Risk: Anything that can harm a companys profitability, from poor management to obsolete products, can be called a business risk. Because of the management who is holding the mutual fund the price of NAV varies. It also depends upon the fund manager who is dealing with the mutual fund.


Currency risk:The possibility that international investment will suffer because the rupee (or dollar depending on the fund) gains strength against the currencies of other countries is known as currency risk.

Country risk:Political instability, financial woes and other problems that weaken a countrys economy can spell trouble for money managers who invest there.

HOW TO INVEST IN MUTUAL FUND:1. Identify Investment needs:Financial goals vary drastically based on the age of investors, their lifestyle, financial independence, family commitments and level of income and expenses among many other factors. Therefore, the first step is to assess your needs. One can begin by defining his investment objectives and needs, which could be regular income, buying a home or finance a wedding or educate the children or a combination of all these needs, the quantum of risk one is willing to take and also according to his cash flow requirements. 2. Choose the right Mutual Fund Scheme:The important thing is to choose the right mutual fund scheme, which can fulfill all the requirements of the investor. The offer document of the schemes tell you its objectives and provides supplementary details like the track records of other schemes managed by the same AMC or by the same Fund Manager. Some other factors to evaluate the schemes before investing in a particular mutual fund are the track record of the performance of the fund, portfolio allocation, dividend yield and the degree of transparency as reflected in the frequency and quality of their communications.

a) For an Equity Fund:

For an equity fund there are some points to evaluate the scheme, which mainly invests in equities:


Investment Portfolio: -The first thing to calculate for an equity scheme is its portfolio of investment. How perfectly the investment is diversified in the different equities of the stock market is the main concern. Risk Diversification: - As good as the portfolio is managed as low would be the risk. For investment as an aggressive investor he should go for risk but for a conservative investor he should evaluate the portfolio according to his risk taking capability. Time Span: - Presently all the equity schemes are having the specialty to invest anytime and also redeem as per the needs. However for a good return investor should invest the fund for long-term perspective (Minimum 1 year).

b) For a Debt Fund:There is an element of risk associated with the debt funds. Hence reasonable care and thought has to be there before picking a debt fund to invest in. some factors to estimate the debt fund are following: Investment Horizon: - The first thing one need to get a fix on is the investment horizon. If investor wishes to invest in a debt fund for anything up to one year, opt for a liquid fund. Anything above that he should look for gilt fund or an income fund. Track Record: - As with the equity fund, a debt fund with good track record is always preferable. The longer the track record, the better to be on the safe side, so its better to choose funds that have been in the market for at least one year.

Credit Quality: - One of the most important factors the investor need to look for in an income fund (debt fund) is the credit rating of the debt instruments in its portfolio. A credit rating of AAA denotes the highest safety, while a rating below BBB is counted as non-investment grade. However some rating companies rate BBB papers as investment grade. The least acceptable rating benchmark is AA. To ensure safety investor should opt for a scheme which has a corpus of about 75% in AAA rated papers or about 90% in AA papers.


Diversification: - In order to limit the loss from possible defaults, an income fund should be reasonably diversified across the companies.

Diversified Investor Base: - Similar to the pre-condition for equity funds, avoid debt funds where a few large investors account for an abnormally high portion of the corpus.

c) For a Balanced Fund:The same criteria of the equity fund can be applied to select, holds good while going for a balanced fund. The additional factor one should check for in a balanced fund is the equity and debt split. The offer document shows the ratio of the equity and debt investment the fund plans to have. Mostly, this takes on a range and varies from time to time depending upon the fund mangers perception for the financial markets. Before investing in an existing balanced fund, the investor should go through the past records, fact sheets, and look up equitydebt split. If the investor is conservative, he should opt for a fund where equity investment is of 60% of the corpus. However for an aggressive investor more equity inclined funds are good option to invest. 3. Select the Ideal Mix of the Schemes:Investing in just one Mutual fund scheme may not meet all the requirements of the investors. So investors should consider investing in a combination of schemes to achieve the specific goals of the investment. 4. Invest Regularly:The best approach is to invest a fixed amount at specific intervals, as in systematic investment plans (SIP). By investing a fixed sum each month or at regular intervals, the investor by fewer units when the price is higher and more units when price is low, thus the average cost per unit goes down. This is called Rupee Cost Averaging and does the investor all over the world follow a disciplined investment strategy. This is also known as Systematic Investment Plan facility of many open-ended funds. 5. Start Early: It is desirable to start investing early and stick to a regular investment plan. If you start now, you will make more profit than if you wait and invest later. The power of compounding lets you earn income on the income and your money multiplies at a compounded rate of return.


6. The Final Step:All the investor needs is to go now for online application forms of various mutual funds schemes and start investing. Or the investor can approach any distributors or financial advisors to invest in mutual funds. Thus investor can reap the rewards in the years to come. Mutual funds are suitable for any kind of investor whether starting a career or at the retirement stage.


Chapter - 4
Objectives, Scope and Strategy


OBJECTIVES OF THE STUDY:In this era of globalization it is very much necessary for a student pursuing B.B.A. to have a corporate exposure for having a better future after completion of the course. Executive training gave me an opportunity to get an exposure in the finance field which is the backbone of any industry. I am doing my executive training or summer training in Franklin Templeton Investment at Patna branch. In todays scenario mutual fund sector is having a great potential of growth. Many AMC are trying to grab the market where Franklin Templeton is also a contender. As a part of my training I have been allotted to execute the following tasks:-

1. To find out the preferences of the investors in different

segment: - Here the objective of my study is to find out what is

preference of an investor in investing there valuable money. How much an investor invests in a particular sector and if so what is the reason behind the investment in a particular sector.

2. To know the preferences for the portfolios:- Here the

objective of my study is also to know the portfolio of investor that what is the investment preference of an investor towards a particular sector and if so what is the reason behind it.

3. To know why one has invested or not invested in

mutual fund: - To know that whether the investor has invested in

mutual fund or not. If a investor has invested in it what is the reason behind it and if not what is the reason of it.

4. To know out the most preferred channel: - To know the most preferred channel by a investor and reason behind the investment


of the investor in a particular sector and the limitation of the other sector according to investor.

5. To know out what should to do boost mutual fund

industry: - To know the reason of backwardness of the mutual fund

industry in India and what should the measures should be taken by asset management company to boost up the mutual fund industry.

6. Knowing the service: - Mutual fund market is the most booming

market in todays scenario. Market survey says that only 6% of the total population is investing in mutual fund. This means that proper product knowledge has not been created among the common people. We, the present management students and future responsible persons of our country also need to know about these mutual fund schemes and make awareness among the people of our reach to earn through mutual fund and thus help in the betterment of our countrys future.

7. Exploring the market: - The internship program helped me to get

to know about the mutual fund industry and to explore the market in a practical manner. Here I came to know about the various areas of operation and came along various other sectors of future opportunities for our personal growth and exposure. Many competitors have emerged in this mutual fund industry in a very short span of time.

8. Getting a whole lot of exposure: - Exposure has plays a very

important role in an individual life so working in the organization helped me shape up my capabilities as well as my skills. During the training I was been opportunity to meet and deal with the corporate people.

9. To know the outcomes of executive training: - Why

executive training is an important component of summer internship program. How theoretical knowledge is being implemented in real situation. These types of thousands questions are arising in my mind so during my executive training I want to clarify these. To acquire social skills by being in constant interaction with the professionals of the organization, other corporate and clients. To analyze the perception of people about mutual fund investment.



A big boom has been witnessed in Mutual fund industry in the financial year 2007-08. In the last quarter of the financial year 07-08 there was decrease in the asset under management as due to global recession. There was also effect on India and this resulted in decrease in the asset under management as stock exchange growth story has been retarded due to global recession. The financial year 2008-09 has witnessed negative return as the market show negative return. However the last quarter of 2008-09 has shown somewhat positive return as the global economy tries to a little to show somewhat positive return. In the first quarter of the financial year 2009-10 there was positive growth in the stock exchange as a result there was also seen growth in the asset under management as market has once again gained the confidence of the investor as the most of the Indian companies had shown growth in their profit. In the second and third quarter of the financial year 2009-10 there was increase in the number of the investment due to improve in the condition of capital market. The research was carried on in Patna. I had been sent to different bank branch from Patna branch office of Franklin Templeton where I completed my project work. I surveyed on my project topic Investment pattern in India on visiting customers of the different bank branches. The study will help to know the preferences of the customers, which company, portfolio, mode of investment, and option for getting return and so on they prefer. This project report may help the company to make further planning and strategy.


Strategy:Strategy is about choice, which affects outcomes. Strategies play an important role in completion of good. They are used to make the problem easier to understand and solve. They guide us through the path which is both planned and simplified. This guideline helps us to work out on goals the perfect manner and help us not to deviate from them. To achieve above maintained tasks/target successfully it is very necessary to develop a roadmap of the destination hence my plan to achieve the target set by company guide is as follows: Knowledge about mutual fund Knowledge about mutual fund industry Knowledge about my company Knowledge about different types of schemes Competitors These works were done to build my concept and what I have done to build good relationship with clients and partners and are nothing but 16 guiding principal for investment success by Sir John Templeton.

Sir John Templetons success rules:Sir John Templeton, founder of the Templeton Group, has distilled his years of experience and expertise into the 16 Rules for Investment Success. Although Sir John Templeton has retired and is no longer affiliated with Franklin Templeton Investments, his enduring principles for investment management continue to guide the Franklin Templeton Funds. The Templeton approach, although clear and simple, requires skill, dedication and astute judgment. The 16 rules for investment success are as follows:- 1. If you begin with a prayer, you can think more clearly and make fewer mistakes. 2. Outperforming the market is a difficult task:-The challenge is not simply making better investment decisions than the average investor. The real


challenge is making investment decisions that are better than those of the professionals who manage the big institutions. 3. Investdont trade or speculate: - The stock market is not a casino, but if you move in or out of stocks every time they move a point or two, the market will be your casino. And you may lose eventuallyor frequently. 4. Buy value, not market trends or the economic outlook: - Ultimately, it is the individual stocks that determine the market, not vice-versa. Individual stocks can rise in a bear market and fall in a bull market. So buy individual stocks, not the market trend or economic outlook. 5. When buying stocks, search for bargains among quality stocks: Determining quality in a stock is like reviewing a restaurant. You dont expect it to be 100% perfect, but before it gets three or four stars you want it to be superior. 6. Buy low. So simple in concept. So difficult in execution: - When prices are high, a lot of investors are buying a lot of stocks. Prices are low when demand is low. Investors have pulled back, people are discouraged and pessimistic. But, if you buy the same securities everyone else is buying, you will have the same results as everyone else. By definition, you cant outperform the market. 7. Theres no free lunch. Never invest on sentiment. Never invest solely on a tip: - You would be surprised how many investors do exactly this. Unfortunately there is something compelling about a tip. Its very nature suggests inside information, a way to turn a fast profit. 8. Do your homework or hire wise experts to help you: - People will tell you: Investigate before you invest. Listen to them. Study companies to learn what makes them successful. 9. Diversifyby company, by industry: - In stocks and bonds, there is safety in numbers. No matter how careful you are, you can neither predict nor control the future. So you must diversify. 10. Invest for maximum total real return: - This means the return after taxes and inflation. This is the only rational objective for most long-term investors. 11. Learn from your mistakes: - The only way to avoid mistakes is not to investwhich is the biggest mistake of all. So forgive yourself for your errors


and certainly do not try to recoup your losses by taking bigger risks. Instead, turn each mistake into a learning experience. 12. Aggressively monitor your investments. Remember, no investment is forever: - Expect and react to change. And there are no stocks that you can buy and forget. Being relaxed doesnt mean being complacent. 13. An investor who has all the answers doesnt even understand all the questions: - A cocksure approach to investing will lead, probably sooner than later, to disappointment if not outright disaster. The wise investor recognizes that success is a process of continually seeking answers to new questions. 14. Remain flexible and open-minded about types of investment: - There are times to buy blue-chip stocks, cyclical stocks, convertible bonds, and there are times to sit on cash. The fact is there is no one kind of investment that is always best. 15. Dont panic: - Sometimes you wont have sold when everyone else is buying, and you will be caught in a market crash. Dont rush to sell the next day. Instead, study your portfolio. If you cant find more attractive stocks, hold on to what you have. 16. Dont be fearful or negative too often: - There will, of course, be corrections, perhaps even crashes. But over time our studies indicate, stocks do go upand upand up. In this century or the next, its still "Buy low, sell high." These are the rules that are generally followed while investing in a mutual fund. Finding the right investment has become quite a challenge. Most of us fall prey to buying the latest top performers and accumulating a few shares of this and that without really considering our financial goals, timeframe and tolerance for risk. Whether we are planning for your individual retirement, investing to meet the expenses of our child's higher education, or simply building cash reserves, it is important to match our financial goals with a mix of assets that may help us to meet those goals. To build a successful investment strategy we should carefully structure our plan to achieve our goals without taking more risk than we can afford or are comfortable with. We also need to consider how much time we have to reach our various goals.


Chapter 5
Research Methodology


This report is based on primary as well secondary data, however primary data collection was given more importance since it is overhearing factor in attitude studies. One of the most important users of research methodology is that it helps in identifying the problem, collecting, analyzing the required information data and providing an alternative solution to the problem. It also helps in collecting the vital information that is required by the top management to assist them for the better decision making both day to day decision and critical ones. Data Sources:Research is totally based on primary data. Secondary data can be used only for the reference. Research has been done by primary data collection, and primary data has been collected by interacting with various people. The secondary data has been collected through various books, journals and websites. Duration of study:The study was carried out for a period of two months, from st st 1 June to 31 July 2009. Sampling: Sampling procedure:- The sample was selected of them who are the customers/visitors of different branches of Bank of India, United bank of India, Central bank of India, irrespective of them being investors or not or availing the services or not. It was also collected through personal visits to persons, by formal and informal talks and through filling up the questionnaire prepared. The data has been analyzed by using mathematical/statistical tool. Sample size: - The sample size of my project is limited to 150 people only. Out of which only 25 people had invested in mutual fund. Other 125 people did not have invested in mutual fund.

Sample design: - Data has been presented with the help of bar graph, pie charts, line graphs etc.


Limitation: Some of the persons were not so responsive. Possibility of error in data collection because many of investors may not given actual answers of my questionnaire. Sample size is limited to 150 visitors of different bank branches. Out of these only 25 had invested in mutual fund. The sample size may not adequately represent the whole market. Some respondents were reluctant to divulge personal information which can affect the validity of all responses. The research is confined to a certain part of Patna only.


Chapter 6 Data Analysis & Interpretation



Age group No of Investors

(a) Age distribution of the investor of Patna

<=30 10 31-40 46 40-45 44 45-50 28 >50 22

Interpretation: - According to this chart out of the 150 person visited in different bank branches the most people who had made any investment in any of the form is highest from the age group of 31-40 years is 46 and the second most investors are in the age group of 41-45 years i.e.44 and the least investors are in the age group of below 30 years.


(b) Educational qualification of investor of Patna

Education al Qualification Educational Qualification Post graduate Graduate Under graduate Others Total Number of investors 27 63 40 20 150

Interpretation: - out of the total number of the people whom visited in different bank branches the investor who are graduate are maximum carrying 42% and post graduate are 18%, under graduate are 27% and other are 13 %( under HSC).


c).Occupation of the investors of Patna

Occupation Govt. service Pvt. service Business Agriculture others No. of investors 55 30 40 15 10

Interpretation:- In occupation group the highest number of person of the total number of people visited is government employee that is 55, whereas the Pvt. Employee is 30, Businessman 40, 15 are in agriculture and remaining 10 in others.


d) Monthly family income of the investor of Patna

Income group (in Rs.) No. of investors 14 40 55 25 16

<=10,000 10,001-15,000 15,001-20,000 20,001-30,000 >30,000

Interpretation:- In the income group of the investors of Patna out of the 150 investor, 9% were from the income group of below 10,000, 27% were from the income group ranges between 10,001-15,000, 36% were from the income group ranges between 15,001-20,000, 17% were from the income group ranges between 20,001-30,000 and the remaining 11% above 30,000.


(2)Investors invested in different kind of investments

Kind of investment No. of respondents

Saving A/C Fixed deposits Insurance Post office(NSC) Mutual fund Shares/debentures Gold/Silver Real estate

140 110 90 40 25 20 60 55

Interpretation:- From the above it can be inferred that out of the 150 respondents, 93% people have kept their money in saving A/c,70% kept their money in fixed deposits, 60% in Insurance,36% in post office(NSC), 16% in mutual fund, 13% in shares,40% in gold and 30% in real estate.



Preference of factors while investing

Factors No. of respondents

(a)liquidity 80

(b)low Risk 30

(c)high return 15

(d)trust 25

Interpretation: - out of the 150 people, 53% prefer liquidity, 20% prefer low risk, 10% prefer to invest where there is high return and 17% prefer where there is trust.



Awareness about Mutual fund and its operation

Response No. of respondents

Yes 120

No 30

Interpretation:- From the above chart it is inferred that 80% people are aware of mutual fund and its operations and 20% are not aware of mutual fund and its operations.


5) Source of information for customers about mutual fund

Source of No. of information respondents

Advertisement Peer group Bank Financial advisors

25 20 35 40

Interpretation: - from the above chart it can be inferred that the financial advisor is the most important source of information about mutual fund. Out of the 120 respondents, 33% know about mutual fund through financial advisor, 29% through bank, 21% through advertisement and 17%through peer group.


6) Investors invested in mutual fund

Response No. of respondents

Yes No Total 125 25 150

Interpretation:- out of the 150 people 83% people have not invested in mutual fund and 17% have invested in mutual fund.


7. Reason for not invested in mutual fund


No. of respondents
30 45 40 10

Not aware Higher risk Uncertainty Not any specific reason

Interpretation:- Out of the 125 people ,24% people are not aware of mutual fund,36 % people perceives that the mutual fund have higher risk than the their traditional form of investment, 32% of the people avoided this due to uncertainty of the market and 8% have not invested due to any specific reason.


8. Investors invested in different Assets Management Company (AMC)

Name of AMC
Reliance HDFC ICICI prudential UTI Franklin Templeton others

No. of investors
8 5 3

2 4

Interpretation: - In Patna most of the investors preferred reliance mutual fund. Here we see that 26% of the total investor has invested in reliance mutual fund, 18% in HDFC, 19% in ICICI prudential, 21% in Franklin Templeton and remaining 11 % in other mutual fund.


9. Reason for investment in Franklin Templeton Reason No. of respondents 10 7 8

Better return Agents advice Financial advisor Other reason

Interpretation: - from the above chart it can be inferred that the maximum people have invested in mutual fund for better return on the advice of the financial advisor.


10. Reason for not invested in Franklin Templeton

Reason No. of respondents Not aware Less return Agents advice 45 20 25

Interpretation: - from the above chart it can be concluded that the main reason for not investing in Franklin Templeton mutual fund is that the major number of people are not aware of it.


11. Preference of investors for future investment in mutual fund

Name of AMC Reliance HDFC ICICI prudential Franklin Templeton UTI others

No. of investors 35 20 22 28 10 15

Interpretation:-from the above graph it can be concluded that the 27% of the investor have shown their interest in Reliance mutual fund, 22% in Franklin Templeton, 17% in ICICI prudential, 15% in HDFC, 8% in UTI and remaining 11% in other mutual fund scheme.


12. Channel preferred by the investors for mutual fund investment


Financial Bank AMC Advisor

No. of respondents




Interpretation: - from the above chart it is clear that maximum people had preferred their investment in mutual fund through financial advisor i.e. 60%, 15% through bank and remaining 25% through AMC.


13. Mode of investment preferred by the investors

Mode of investment

One time Systematic investment investment plan

No. of respondents



Interpretation:-from the above chart it is clear that the total number of investor who wants to invest in mutual fund will invest mostly through one time investment i.e. 65% and the remaining 35% through systematic investment plan.


14. Preferred portfolios by the Investors

Portfolio No. of investors Equity Debt Balanced 50 35 45

Interpretation: - from the above chart it is clear that the most of the people have stressed their investment in equity 38%, whereas in balanced fund there are also 35% people and in debt fund there is 27% people who are interested in it.


15. Option for getting return preferred by the investors Option Dividend Dividend Growth payout reinvested

No. of respondents




Interpretation: - from the above chart it can be inferred that 71% of people has preferred growth plan for their investment, 21% for dividend payout and remaining 8% for dividend reinvested.


16) Those person who have not invested in mutual fund are willing to invest in mutual fund if they are given proper detail about benefit in mutual fund:Response Yes No

No. of 115 respondents


Interpretation:- From the above pie chart it can concluded the those investor who has not invested in mutual fund are willing to invest in it if the investor were given proper education about the benefits of investing in mutual fund then it is seen that 92% of people are willing to invest in it.


17) Preference of the investor to invest in different asset management company after proper education is given about mutual fund:-

Name of AMC Reliance HDFC ICICI prudential UTI Franklin Templeton Others Not decided yet Total

No. of investors 27 22 18 15 18 15 10 125

Interpretation: - From the above analysis it can be said that those investor who has not invested in mutual fund are ready to invest in mutual fund after they has been properly educated about the mutual fund most has been decided to invest in mutual fund.


Chapter 7 Findings & Conclusion


In Patna in the age group of investor of 31-40 years were more in numbers. The second most investors were in the age group of 41-45 years and the least were in the age group of below 30 years. In Patna most of the investors were Graduate or post graduate and below HSC there were very few in numbers. In occupation group most of the investors were Govt. employees, the second most investors were businessman and the least were associated with agriculture. In family income group, between Rs.15, 001-20,000 were more in numbers, the second most were in the income group of Rs.10, 001-15,000 and the least were in the group of below Rs.10, 000. About all the respondents had a saving A/c in bank, 67% invested in fixed deposits, only 18% invested in mutual fund. Mostly respondents preferred liquidity while investment, the second most preferred low risk and then high return. About 80% respondents were aware about mutual fund and its operations and remaining 20% were not. Among the total respondents 82% have not invested in mutual fund and remaining 18% have invested in mutual fund. Among the people who have not invested in mutual fund 36% have said that due to higher risk in mutual fund and 32% have said that due to uncertainty in income of the mutual fund they have not invested in it.24% of the people have said that they were not aware of mutual fund.


Most of the investor has made their investment in Reliance, HDFC, and ICICI prudential mutual fund. Franklin Templeton comes after HDFC according to the respondents. Of the total number of the respondent maximum have invested in Franklin Templeton due to better return and with the advice of their financial advisor. Most of the respondent who has said that they have not invested in Franklin Templeton mutual fund has said that have done as they were not aware of it. Most of the respondents have said that they invest in any of the scheme on the advice of their financial advisor. 65% of the respondents have said that they will go for onetime payment whereas 35% of the respondents have said they would invest in mutual fund through systematic investment plan. 35 % of the respondent has said that they would go for a balanced scheme whereas 38% of the respondent has said that they will go for equity scheme as this will give higher return. 71% of the people have preferred growth plan than dividend plan.


Running a successful mutual fund requires complete understanding of the peculiarities of the Indian Stock Market and also the psyche of the small investors. The study has made an attempt to understand the financial behavior of mutual fund investors in connection with the preferences of Brand (AMC), Products, channels, etc. I observed that many people have fear of mutual fund. They think their money will not be secure in mutual fund. They need the knowledge of mutual fund and its related terms. Many of people do not have invested in mutual fund due to lack of awareness although they have money to invest. As the awareness and income is growing the number of mutual fund investors are also growing. Brand plays important role for the investment. People invest in those companies where they have faith or they are well known with them. There are many AMCs in Patna but only some are performing well due to Brand awareness. Some AMCs are not performing well although some of the schemes of them are giving good return but people do not invest in it as they are not aware of them. Distribution channels are also important for the investment in mutual fund. Financial advisors are the most preferred channel for the investment in mutual fund. They can change investors mind from one investment option to others. Many of investors directly invest their money through AMC because they do not have to pay entry load. Only those people invest directly who know well about mutual fund and its operations and those have time.


Chapter 8 Suggestions & Recommendations


Suggestions and Recommendations

1) Investors should be made aware of mutual fund: - The most vital problem spotted is of ignorance. Investors should be made aware of the benefits. Nobody will invest until and unless he is fully convicted. Investors should be made to realize that ignorance is no longer bliss and what they are losing by not investing. 2) Investor should educate about benefits of mutual fund:Mutual fund offers a lot of benefit which no other single option could offer. But most of the people are not even aware of what actually a mutual fund is? They only see it as just another investment option. So the advisors should target for more and more young investors. Young investors as well as persons at the height of their career would like to lack of expertise and time. 3) Recruitment of trained financial advisor:-Mutual Fund Company needs to give the training of the individual financial advisors about the fund/scheme and its objective, because they are the main source to influence the investors. There are a number of beneficial schemes of mutual fund but in the ignorance of the AMC to give proper knowledge to the financial advisor the fund losses its importance. 4) Assessing the financial need of investor:-Before making any investment financial advisors should first enquire about the risk tolerance of the investors/customers, their need and time (how long they want to invest). By considering these three things they can take the customers into consideration. 5) Need of Better service to investor: - When a fund is sold to a customer than there is strong need of better service to the customer and without this even a loyal customer to a particular product became give preference to other product. During the period of my survey I have found that a lot of customers are happy with the return they are getting through the investment in mutual fund but due to the absence


of the any further service from their brokers they had given preference to other investment mode. 6) Need of promotion for the Franklin Templeton mutual fund:-During the period of my project I have found that there are a very few number of people who knew about Franklin Templeton mutual fund. They said that they never the name of this mutual fund and so they are not willing to invest in it. Thus here the major problem seems to lack of proper advertisement from AMC. When the people know about the mutual fund they will automatically be urged to invest in it. 7) Need to target the middle class people through SIP:-Systematic investment plan (SIP) is one of the innovative products launched by assets management companies very recently in the industry. SIP is easy for monthly salaried person as it provides the facility of do the investment in EMI. Though most of the prospects and potential investors are not aware about the SIP. There is large scope for the companies to tap the salaried person as well as the middle class people. 8) Need to remove the fear among investor of mutual by giving them relevant information:- Many investor feared that mutual fund are like the share and if they invest in it then due to the fluctuating condition of the market there money will also may give negative return. During my survey period many investor has demanded for guaranteed return as the fixed deposit has given it to them. As mutual fund cannot give them guaranteed return but the investor will have to give a understanding that mutual fund will give them better return in the long term. 9) Requirement of the improvement of the channels of distribution: During the present scenario banks are the main channel of distribution of investment in the mutual fund. The other major channel are the brokering houses, karvy etc., though these are the main important channel but these lack the approach to the middle class people and


due to this there is a large segment of Indian financial market being untapped. 10) Increasing the number of investor in highly untapped areas i.e. rural areas:- Though the Indian mutual fund industry have shown the double digit growth during the current decade but the reach of mutual fund industry is limited to the metro cities or smaller town. About 70% of Indian population live in village and only 1% of total population in rural areas invest in mutual fund. So there are a large number of untapped populations which the mutual fund industry has to be focus. 11) Government policy for the widespread of mutual fund:- There is also the need of support of government for the investment in the mutual fund industry as there is lack of interest in vast majority of population due to lack of the knowledge. Though the different education programme for investment in mutual fund has been started by AMFI (Association of Mutual Fund of India) but there is need for start of a programme that will be supported by government on a large scale so that a mass community can know about it. 12) Full disclosure of all the detail needed by the customer: - During my survey period I have found that a number of investor has urged to invest in mutual fund by saying that there is guaranteed return in mutual fund and during the recession period they are getting negative return so they will never invest in it. This is due to the fact of the lack of the full disclosure of all the fact of the mutual fund. So the AMC should give advice to financial advisor of full disclosure of all the fact. These are all the suggestion that I would recommend to the Franklin Templeton investment Patna Branch. I hope that these suggestions are helpful for the development of the AMC in Patna and management will take further step to improve it.