HDFC Mutual Fund

INTRODUCTION
The significant outcome of the government policy of liberalization in industrial and financial sector has been the development of new financial instruments. These new instruments are expected to impart greater competitiveness, flexibility and efficiency to the financial sector. Growth and development of various mutual fund products in Indian capital market has proved to be one of the most catalytic instruments in generating momentous investment growth in the capital market. These is a substantial growth in the mutual fund market due to a high level of precision in the design and marketing of variety of mutual fund products by banks and other financial institution providing growth, liquidity and return. In this context, prioritization, preference building and close monitoring of mutual funds are essential for fund managers to make this the strongest and most preferred instrument in Indian capital market for the coming years. With the decline in the bank interest rates, frequent fluctuations in the secondary market and the inherent attitude of the Indian small investors to avoid risk, Mutual Funds are taking their place. Mutual funds combine various elements of liquidity, return and security in making themselves as the best possible alternative for the small investors in Indian market. I have attempted to study various need expectations of small investors from different types of mutual funds available in the Indian market and identify the risk return perception with the purchase of Mutual Funds. The Indian financial system in general and the mutual fund industry in particular continue to take turn around from early 1990s. During this period mutual funds have pooled huge investments for the corporate sector. The investment habit of the small investors particularly has undergone a sea change. Increasing number of players from public as well as private sectors has entered in to the market with innovative schemes to cater to the requirements of the investors, in India and abroad. For all investors, particularly the small investors, mutual funds have provided a better alternative to obtain benefits of expertise- based equity investments to all types of investors. 1

COMPANY PROFILE

HDFC Asset Management Company Limited (AMC)
Vision
To be a dominant player in the Indian mutual fund space recognized for its high levels of ethical and professional conduct and a commitment towards enhancing investor interests.

Sponsors Housing Development Financial Corporation Limited (HDFC)
HDFC was incorporated in 1977 as the first specialized housing finance institution in India. HDFC provides financial assistance to individuals, corporate and developers for the purchase or construction of residential housing. It also provide property related services (e.g. property identification, sales services and valuation), training and consultancy. Of course activities, housing finance remains the dominant activity. HDFC currently has a client base of over 800000 borrowers, 1200000 depositors, 92000 shareholders and 50000 deposit agents. HDFC raises funds from international agencies such as the World Bank, IFC (Washington), USAID, CDC, ADB and KFW, domestic term loans from banks and insurance companies, bonds and deposits. HDFC has received the highest rating for its bonds and deposits program for the 9 th year in succession. HDFC Standard Life Insurance Company Limited. Promoted by HDFC was the 1 st life insurance company in the private sector to be granted a Certificate of Registration(on October 23, 2000) by the Insurance Regulatory and Development Authority to transact life insurance business in India.

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Standard Life Investment Limited
The Standard Life Assurance Company was established in 1825 and has considerable experience in global financial markets. In 1998, Standard Life Investment Limited became the dedicated investment management company of The Standard Life Group and is owned 100% by the Standard Life Assurance Company. With the global assets under management of approximately US$186.45 billion as at March 31, 2005, Standard Life Investment Limited is one of the world’s major investment companies and is responsible for investing money on behalf of five million retail and institutional clients worldwide. With its headquarters in Edinburgh, Standard Life Investment Limited has an extensive and developing global presence with operations in the United Kingdom, Ireland, Canada, USA, China, Korea and Hong Kong. In order to meet the different needs and risk profiles of its clients, Standard Life Investment Limited manages a diverse portfolio covering all the major markets world-wide, which includes a range of private and public equities, government and company bonds, property investments and various derivative instruments. HDFC Trustee Company Ltd. A company incorporated under the Companies Act, 1956 is the Trustee to the Mutual Fund vide the Trust deed dated June 8, 2000, as amended from time to time. HDFC Trustee Company Limited is a wholly owned subsidiary of HDFC Limited. HDFC asset Management Company (AMC) HDFC AMC was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset Management Company for the Mutual Fund by SEBI on July 3, 2000. The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai - 400 020. 3

In terms of the Investment Management Agreement, the Trustee has appointed HDFC Asset Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC is Rs. 75.161 crore. The present share holding pattern of AMC is as follows:

Particulars HDFC Standard Life Investment Limited

% of the paid up share capital 50.10 49.90

Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund, following a review of its overall strategy, had decided to divest its Asset Management business in India. The AMC had entered into an agreement with ZIC to acquire the said business, subject to necessary regulatory approvals. On obtaining the regulatory approvals, the Schemes of Zurich India Mutual Fund has now migrated to HDFC Mutual Fund on June 19, 2003. The AMC is managing 18 open-ended schemes of the Mutual Fund viz. HDFC Growth Fund (HGF), HDFC Balanced Fund (HBF), HDFC Income Fund (HIF), HDFC Liquid Fund (HLF), HDFC Tax Plan 2000 (HTP), HDFC Children's Gift Fund (HDFC CGF), HDFC Gilt Fund (HGILT), HDFC Short Term Plan (HSTP), HDFC Index Fund, HDFC Floating Rate Income Fund (HFRIF), HDFC Equity Fund (HEF), HDFC Top 200 Fund, (HT200), HDFC Capital Builder Fund (HCBF), HDFC TaxSaver (HTS), HDFC Prudence Fund (HPF), HDFC High Interest Fund (HHIF), HDFC Sovereign Gilt Fund (HSGF) and HDFC Cash Management Fund (HCMF). The AMC is also managing the respective Plans of HDFC Fixed Investment Plan, a closed ended Income Scheme. The AMC has obtained

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registration from SEBI vide Registration No. - PM / INP000000506 dated December 22, 2000 to act as a Portfolio Manager under the SEBI (Portfolio Managers) Regulations, 1993. The Certificate of Registration is valid from January 1, 2001 to December 31, 2003. The AMC is also providing portfolio management / advisory services and such activities are not in conflict with the activities of the Mutual Fund.

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What exactly is a Mutual Fund?
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund. The Situation could vary as per age groups, mindsets and risk taking ability, but the solution, in each case wants money to grow. Most of the investors don’t have sufficient knowledge about different investment options, financial instrument’s nature, market information, analytical skills and therefore their funds are lacking proper management and diversification to get market-linked return with flexibility as well as liquidity. These kinds of investors should prefer mutual funds to channelise their funds properly. A security that gives 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. Shares are issued and can be redeemed as needed. Mutual Funds are the unique instrument that offers an individual professional management, diversification, flexibility, liquidity and a chance to get market linked returns. Mutual funds are indeed the best tool for wealth creation. Whatever other instruments can do, mutual funds can do too – and more efficiently. 6

MUTUAL FUND INDUSTRY
Alone UTI with just one scheme in 1964 now competes with as many as 400 odd products and 34 players in the market. In spite of the stiff competition and losing market share, UTI still remains a formidable force to reckon with. Last six years have been the most turbulent as well as exiting ones for the industry. New players have come in, while others have decided to close shop by either selling off or merging with others. Product innovation is now passé with the game shifting to performance delivery in fund management as well as service. Those directly associated with the fund management industry like distributors, registrars and transfer agents, and even the regulators have become more mature and responsible. The industry is also having a profound impact on financial markets. While UTI has always been a dominant player on the bourses as well as the debt markets, the new generations of private funds which have gained substantial mass are now seen flexing their muscles. Fund managers, by their selection criteria for stocks have forced corporate governance on the industry. By rewarding honest and transparent management with higher valuations, a system of risk-reward has been created where the corporate sector is more transparent then before. Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG and technology sector. Funds performances are improving. Funds collection, which averaged at less than Rs100bn per annum over five-year period spanning 1993-98 doubled to Rs210bn in 1998-99. In the current year mobilization till now have exceeded Rs300bn. Total collection for the current financial year ending March 2000 is expected to reach Rs450bn. 7

What is particularly noteworthy is that bulk of the mobilization has been by the private sector mutual funds rather than public sector mutual funds. Indeed private MFs saw a net inflow of Rs. 7819.34 crore during the first nine months of the year as against a net inflow of Rs.604.40 crore in the case of public sector funds. Mutual funds are now also competing with commercial banks in the race for retail investor’s savings and corporate float money. The power shift towards mutual funds has become obvious. The coming few years will show that the traditional saving avenues are losing out in the current scenario. Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. The fund mobilization trend by mutual funds in the current year indicates that money is going to mutual funds in a big way. The collection in the first half of the financial year 1999-2000 matches the whole of 1998-99. India is at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not even 10% of the bank deposits, but this trend is beginning to change. Recent figures indicate that in the first quarter of the current fiscal year mutual fund assets went up by 115% whereas bank deposits rose by only 17%. (Source: Thinktank, The Financial Express September 99) This is forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other assets, which improves liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they will not close down completely. Their role as intermediaries cannot be ignored. It is just that Mutual Funds are going to change the way banks do business in the future.

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HISTORY & BACKGROUND

Four Phases Of Mutual Fund In India
The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under. First Phase - 1964-87 An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under management. Second Phase - 1987-1993 (Entry of Public Sector Funds) Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47, 004 as assets under management.

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Third Phase - 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds. Fourth Phase - since February 2003 This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29, 835 crores (as on January 2003). 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.

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The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores of AUM and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

GROWTH IN ASSETS UNDER MANAGEMENT

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TYPES OF MUTUAL FUNDS
Mutual fund schemes may be classified on the basis of its structure and its investments.

By Structure:
Open-ended Funds An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. Closed-ended Funds A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. Interval Funds Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices.

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By Investment Objective:Income Funds The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and government securities. Income Funds are ideal for capital stability and regular income. Balanced Funds The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth. Growth Funds The aim of growth funds is to provide capital appreciation over the medium to long-term. Such schemes normally invest a majority of their corpus in equities. It has been proven that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time. Money Market Funds The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer shortterm instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods.

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Load Funds: A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history. No-Load Funds: A no-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work.

Other Schemes:Tax saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA by investing in Mutual Funds, provided the capital asset has been sold prior to April 1, 2000 and the amount is invested before September 30, 2000. Special Schemes: Industry Specific Schemes Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG and Pharmaceuticals etc.

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 Index Schemes Index Funds attempt to replicate the performance of a particular index such as the BSE Sense or the NSE 50  Sectoral Schemes Sect oral Funds are those, which invest exclusively in a specified industry or a group of industries or various segments such as 'A' Group shares or initial public offerings.

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PROCESS OF MUTUAL FUND

In the above graph shows how Mutual Fund works and how investor earns money by investing in the Mutual Fund. Investors put their saving as an investment in mutual fund. The fund manager, who is a person who takes the decisions where the money should be invested in securities according to the scheme’s objective. Securities include Equities, Debentures, Govt. securities, Bonds and Commercial Paper etc. These securities generate returns to the fund manager. The fund manager passes beck return to the investor.

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Mutual Funds – Organization
There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund:

Organization of a Mutual Fund
Rights of a Mutual Fund Unit holder A unit holder in a Mutual Fund scheme governed by the SEBI (Mutual Funds) Regulations is entitled to: 1. Receive unit certificates or statements of accounts confirming the title within 6 weeks from the date of closure of the subscription or within 6 weeks from the date of request for a unit certificate is received by the Mutual Fund. 2. Receive information about the investment policies, investment objectives, financial position and general affairs of the scheme.

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3. Receive dividend within 42 days of their declaration and receive the redemption or repurchase proceeds within 10 days from the date of redemption or repurchase. 4. Vote in accordance with the Regulations to:a. Approve or disapprove any change in the fundamental investment policies of the scheme, which are likely to modify the scheme or affect the interest of the unit holder. The dissenting unit holder has a right to redeem the investment. b. Change the Asset Management Company. c. Wind up the schemes. 5. Inspect the documents of the Mutual Funds specified in the scheme's offer document.

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Why should one invest in mutual funds……?
• One can avail of the benefits of better returns with added benefits of anytime liquidity by investing in open-ended debt funds at lower risk. • One can minimize his risk by investing in mutual funds as the mutual fund managers analyze the companies’ financials more minutely than an individual can do as they have the expertise to do so. They can manage the maturity of their portfolio by investing in instruments of varied maturity profile. • Moreover, mutual funds are better placed to absorb the fluctuations in the prices of the securities as a result of interest rate variation and one can benefits from any such price movement. • Liquid funds offer liquidity as well as better return than banks and so attract investors. Many funds provide anytime withdrawal enabling a big investor to take maximum benefits. • Apart from liquidity, the funds provide very good post-tax returns on year-to-year basis. Even some of the debt funds have generated superior returns at relatively low level of risk. On an average debt funds have posted returns over 10 percent over one year horizon. In nutshell we can say that these funds have delivered more than what one expects of debt avenues such as post office schemes or bank fixed deposits. • Mutual funds specialize in identification of stocks through dedicated experts in the field and this enables them to pick stocks at the right movement. Sector funds provide an edge and generate good returns if the particular sector is doing well. • The benefits listed so far are essentially for the small retail investor but the industry can attract investments from institutional and big investors as well. 19

Moving up in the risk spectrum, there are many people who would like to take some risk and invest in equity funds/capital market. However, since their appetite for risk is also limited, they would rather have some exposure to debt as well. For these investors, balanced funds provide an easy route of investment. Armed with the expertise of investment techniques, they can invest in equity as well as in good quality debt thereby reducing risk and providing the investor with better returns than he could otherwise manage. • Next problem is that of our funds or money. A single person can’t invest in multiple high-priced stocks for the sole reason that his pockets are not likely to be deep enough. This limits him from diversifying his portfolio as well as benefiting from multiple investments. • Investing through MF route enables an investor to invest in many good stocks and reap benefits even through a small investment. This not only diversifies the portfolio and helps in generating returns from a number of sectors but reduces the risk as well. Through identification of the right fund might not be an easy task, a good investment consultants and counselors will can investors take informed decision. • Investing in just one Mutual Fund scheme may not meet all investment needs. One might consider investing in a combination of schemes to achieve your specific goals. Here is the risk, return grid that shows how and where an investor can invest according to his risk, returns appetite. An investor can see different kinds of funds where in he can get maximum benefit with utmost care.

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Common investment mistakes that people can make
Knowing about some investment mistakes people can make. 1. Investing without a clear plan of action: Many people neglect to take the time to think about their needs and long-term financial goals before investing. Unfortunately, this often results in falling short of their expectations. You should decide whether you are interested in rice stability, growth, or a combination of these. Determine your investment goals. Then, depending on your age and your tolerance for risk, select mutual fund with objective similar to yours. 2. Meddling with your account too often: You should have clear understanding of your investments so that you are comfortable with their behavior. If you keep transferring investments in response to downturns in prices, you may miss the upturns as well. Even in the investment field, the “tortoise” that is more patient, may win over the “hare”. While past performance does not necessarily guarantee future performance, your understanding of the behavior of various investments over a time can help prevent you from becoming shortsighted about your long-term goals. 3. Losing sight of inflation: While may be aware of the fact that the cost of goods and services are rising, people tend to forget the impact of inflation will have on investment in long-term. The value of Rs.100 in 1980 was down to Rs. 26 in 1995. This means that the buying power of rupee has decreased, you can not buy as much for Rs.100 now that you could back in 1980. (Consumer price index for urban non-manual employees has grown by 9.35% per annum between 1980-81 and 1994-95. Source: RBI report on Currency and Finance).You have to keep in mind that will eat into your savings faster than you can imagine.

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4. Investing too little too late: People do not “pay themselves first”. Most people these days have too many bills to pay every month, and planning for your future often takes a backseat. Regardless of age or income, if you do not place long-term investing among your top priorities, you may not be able to meet your financial goals. The sooner you start, the less you have to save every month to reach your financial goals. 5. Do not put all your eggs into one basket, diversify: When it comes to investing, most of us do not appreciate the importance of diversification. While we know that we should not “put all our eggs in one basket”, we often relate this concept to stocks and bonds. Take the time to discuss the importance of diversifying investments among different assets categories and industries. When you spread your holdings around, you do not have to rely on the success of just one investment.

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BENEFITS OF MUTUAL FUND Benefits of Mutual Funds

Mutual funds serve as a link between the saving public and the capital markets. They mobilize savings from the investors and bring them to borrowers in the capital markets. Today mutual funds are fast emerging as the favorite investment vehical because of the many advantages they have over other forms and avenues of investing. The major advantages offered by mutual funds to all investors are: Professional Management Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. Diversification Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do 23

all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.

Variety
Mutual funds offer a tremendous variety of schemes. This variety is beneficial in two ways: first, it offers different types of schemes to investors with different needs and risk appetites; secondly it offers an opportunity to investors to invest sums across a variety of schemes, both debt and equity. For example, an investor can invest his money in a Growth Fund ( equity scheme) and Income Fund (Debt scheme) depending on his risk appetite and thus creates balanced portfolio easily or simply just buy a Balanced scheme.

Convenient Administration Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. Return Potential Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. Low Cost Mutual Finds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors. Liquidity In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can 24

be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Transparency You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook. Flexibility Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience. Affordability Investors individually may lack sufficient funds to invest in high-grade stock. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. Choice of schemes Mutual Funds offer a family of schemes to suit your varying needs over a lifetime. Regulations All Mutual Funds are registered with SEBI and they function within the provision of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI. Tax Benefits Any income distributed after March 31, 2002 will be subject to tax in assessment of all unit holders. However, as a measure of concession to unit holders of open25

ended equity-oriented funds, income distributions for the year ending March 31,2003,will be taxed at a concessional rate of 10.5%. In case of Individuals and Hindu Undivided Families a deduction up to Rs 9000 from the Total income will be admissible in respect of income from investments specified in Section 80L, including income from units of the Mutual Fund. Units of the schemes are not subject to Wealth-Tax and Gift-Tax.

DRAWBACKS OF INVESTING IN MUTUAL FUNDS
Potential loss Unlike a bank deposit, the investment in a mutual fund could fall in value, as the fund is nothing bur a portfolio of different securities. Apart from a few assured returns schemes, the fund does not guarantee any minimum percentage of return. The Diversification Penalty While diversification reduces the risk of loss from holding a single security, it also limits the larger gains if a single security increases dramatically in value. Also, diversification does not protect the unit holders totally from an overall decline in the market.

No tailor made portfolio
Mutual fund portfolios are created and marked by AMCs, in to which investors invest. They can not made tailor made portfolio.

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MUTUAL FUND REGULATION
There was no uniform regulation of the mutual funds industry till a few years ago. The UTI was regulated by a special Act of Parliament while funds promoted by public sector banks were subject to RBI Guidelines of July 1989. The Securities & Exchange Board of India (SEBI) was formed in 1993 as a capital market regulator. One of its responsibilities was to regulate the mutual fund industry and it came up with comprehensive regulations for the industry in 1993. The rules for the formation, administration and management of mutual funds in India were clearly laid down. Regulations also prescribed disclosure requirements. The regulations were thoroughly reviewed and re-notified in December 1996. The revised guidelines tighten the accounting and disclosure requirements in line with recommendations of The Expert Committee on Accounting Policies, Net Asset Values and Pricing of Mutual Funds. The SEBI (Mutual Funds) Regulations, 1996 have been further amended in 1997, 1998 and 1999. Today, all mutual funds are regulated by SEBI. Efforts have been made to bring UTI schemes under SEBI's ambit with the result that all schemes, with the exception of Unit 64, are now regulated by the capital market regulator.

Some facts for the growth of mutual funds in India  100% growth in the last 6 years. Number of foreign AMC's are in the queue to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management worldwide. Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required. 27

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We have approximately 29 mutual funds which is much less than US having more than 800. There is a big scope for expansion. 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities. Mutual fund can penetrate rural like the Indian insurance industry with simple and limited products. SEBI allowing the MF's to launch commodity mutual funds. Emphasis on better corporate governance. Trying to curb the late trading practices.

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Legal and Regulatory Framework
Mutual funds are regulated by the SEBI (Mutual Fund) regulations, 1996. SEBI is the regulator of all funds, except offshore funds. Bank sponsored mutual finds are jointly regulated by SEBI and RBI permission. If there is a bank sponsored find, it cannot provide a guarantee without RBI permission. RBI regulates money and govt. securities in which mutual fund invest. Listed mutual funds are subject to the listing regulations of stock exchanges. Since the AMC and trustee co, are Co.s they are regulated by the department of co affairs, they have to send periodic report to the roc and the co law board is the appellate authority.

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Investors cannot sue the trust, as they are the same as the trust and cant sure themselves. UTI is governed by the UTI act, 1963 and is voluntarily under SEBI regulations. UTI can borrow as well as lend and also engage in other financial services activities. SROs are the second tier in the regulatory structure; SROs cannot do any legislation on their own. All stock exchanges are SROs. AMFI is an industry association of mutual funds. AMFI is not yet a SEBI registered SRO. AMFI has created code for mutual funds. AMFI aims at increasing investor awareness about mutual finds, encouraging best practices and bringing about high standards of professional behavior in the industry.

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Association of Mutual Funds in India (AMFI)
With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non-profit organisation. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August, 1995. AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders. The objectives of Association of Mutual Funds in India The Association of Mutual Funds of India works with 30 registered AMCs of the country. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The objectives are as follows: This mutual fund association of India maintains a high professional and ethical standards in all areas of operation of the industry. It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association. 30

AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. Association of Mutual Fund of India do represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. It develops a team of well-qualified and trained Agent distributors. It implements a programme of training and certification for all intermediaries and other engaged in the mutual fund industry. AMFI undertakes all India awareness programme for investors in order to promote proper understanding of the concept and working of mutual funds. At last but not the least association of mutual fund of India also disseminate information’s on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies.

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FUTURE SCENARIO
The asset base will continue to grow at an annual rate of about 30 to 35 % over the next few years as investor’s shift their assets from banks and other traditional avenues. Some of the older public and private sector players will either close shop or be taken over. Out of ten public sector players five will sell out, close down or merge with stronger players in three to four years. In the private sector this trend has already started with two mergers and one takeover. Here too some of them will down their shutters in the near future to come. But this does not mean there is no room for other players. The market will witness a flurry of new players entering the arena. There will be a large number of offers from various asset management companies in the time to come. Some big names like Fidelity, Principal, Old Mutual etc. are looking at Indian market seriously. One important reason for it is that most major players already have presence here and hence these big names would hardly like to get left behind. In the U.S. most mutual funds concentrate only on financial funds like equity and debt. Some like real estate funds and commodity funds also take an exposure to physical assets. The latter type of funds are preferred by corporate’s who want to hedge their exposure to the commodities they deal with. For instance, a cable manufacturer who needs 100 tons of Copper in the month of January could buy an equivalent amount of copper by investing in a copper fund. For Example, Permanent Portfolio Fund, a conservative U.S. based fund invests a fixed percentage of it’s corpus in Gold, Silver, Swiss francs, specific stocks on various bourses around the world, short –term and long-term U.S. treasuries etc. 32

In U.S.A. apart from bullion funds there are copper funds, precious metal funds and real estate funds (investing in real estate and other related assets as well.).In India, the Canada based Dundee mutual fund is planning to launch a gold and a real estate fund before the year-end. In developed countries like the U.S.A there are funds to satisfy everybody’s requirement, but in India only the tip of the iceberg has been explored. In the near future India too will concentrate on financial as well as physical funds. The mutual fund industry is awaiting the introduction of DERIVATIVES in the country as this would enable it to hedge its risk and this in turn would be reflected in it’s Net Asset Value (NAV). SEBI is working out the norms for enabling the existing mutual fund schemes to trade in Derivatives. Importantly, many market players have called on the Regulator to initiate the process immediately, so that the mutual funds can implement the changes that are required to trade in Derivatives.

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DIFFERENT TERMS

Sale Price Sale price is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load. Repurchase Price Repurchase price is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price. Redemption Price Redemption price is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related. Sales Load Sales load is a charge collected by a scheme when it sells the units. Also called, ‘Front-end’ load. Schemes that do not charge a load are called ‘No Load’ schemes.

NET ASSETS VALUE (NAV)

The performance of a particular scheme of mutual fund is denoted by Net Assets Value (NAV).Mutual fund invest the money collected from the investors in securities markets. In simple word, Net Asset Value is the market value of the securities held by the scheme. Since market value of securities changes every day, NAV of a scheme also varies on day to day basis. The NAV per unit is the 34

market vale of securities of a scheme divided buy the total no of units of the scheme of any particular date. For example if the market value if securities of a mutual fund scheme is Rs. 200 lakhs and mutual fund has issue 10 lakhs units of Rs.10 each to the investors, then the NAV per unit of the fund is Rs. 20 . NAV is required to be disclosed by the mutual funds on a regular basis –daily of weeklydepending on the type of scheme. The net assets value (NAV) is the actual value of one unit of a given scheme in any given business day. The NAV reflect the liquidation value of the funds investments on that particular day after accounting for all expenses. It is calculated by deducting all liabilities except unit capital of the fund from the realizable value of all assets and dividing it by number of units outstanding. So NAV is equals toMarket / fair value of schemes (+) Receivables (+) Accrued income (+) Other assets (-) Accrued expenses (-) Payables (-) Other liability (/) Number of unit outstanding. Here, "other assets" includes any income due to the fund but not received as on the valuation date (for example, dividend announced by a company but yet to be received). Similarly, "other liabilities" includes expenses payable by the fund, for example management fees payable to the AMC. Thus, SEBI requires that all expenses and incomes are accrued up to the valuation date and considered for NAV computation.

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Net Asset Value - NAV 1. In the context of mutual funds, the total value of the fund's portfolio less liabilities. The NAV is usually calculated on a daily basis.

2. In terms of corporate valuations, the book value of assets less liabilities. Notes: The NAV is usually below the market price because the current value of the fund’s assets is higher than the historical financial Net Asset Value Per Share - NAVPS 1. The value of a mutual fund share. Calculated by dividing the total net asset value of the fund by its number of outstanding shares. 2. A fundamental analysis indicator that gives an estimate of the value of a fund's shares after all assets are sold and all liabilities are paid off. Notes: 1. In other words, NAVPS is the value of a single unit of a mutual fund. This figure is affected by both its underlying value and market forces. It is important to consider both these factors when buying a mutual fund because the price that the fund investors pay is based on them. 2. The NAVPS is usually below the market price per share because the current value of the fund's assets is higher than the value appearing on the historical financial statements used in the NAVPS calculation. Financial statements used in the NAV.

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Unit Unit means the interest of the holders in a scheme. Each unit represents one undivided share in the assets of a scheme. The value of each changes depending on the performance of the fund. Asset Management Company (AMC) Making decisions regarding investment of the money of the unit holders is a tricky affair. People at the helm of affairs need to have knowledge about investment alternatives and should also have up- to- date information. This is where the role of an Asset Management Company comes into play. The AMC has to act as the investment manager of the Trust under the Board supervision and direction of the Trustees. The AMC should also be approved and registered with the SEBI as an AMC. Directors of the AMC should have adequate professional experience in financial services and should be individuals of high moral standing. One of the other objectives of forming an AMC is that of bringing about transparency in the working of a mutual fund. The AMC and its directors are answerable to the Trustees and must submit quarterly reports to them on AMC activities. They also have to make required disclosures to the investors in areas such as calculation of NAV and repurchase price. Lock in period: Lock-in-period is the minimum period for which investment made in new units of a scheme cannot be redeemed. Normally, this is specified for tax saving schemes.

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Systematic transfer plan: This is a plan offered by some funds under which an investor may choose to transfer a specified amount from their investments in one scheme of the fund to another scheme of the same fund at periodic intervals (usually monthly or quarterly). Systematic investments plan: Under these plans, the investor gives a mandate to the mutual fund to allot fresh units at specified intervals (monthly, quarterly, etc.) against which the investor provides post-dated cheques. On the specified dates, the cheques are realized by the mutual fund and, additional units at the prevailing NAV are allotted to the investor. This is highly convenient for a person who has a regular source of income and wishes to allocate a portion of the same towards savings. The investor does not need to spend time and effort in evaluating investments in each time interval and probably ensures that the surplus funds do not remain idle. It carries an additional advantage of Rupee Cost Averaging. By investing a fixed amount at regular intervals, one ends up buying more units when the price is low, and fewer units when the price is high. As a result, over a period of time, the average unit costs will always be less than average market price per unit, irrespective of whether the market is rising, falling or fluctuating.

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SURVEY FINDINGS

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Background &Need for the study:
It is widely believed that MF is a retail product designed to target small investors, salaried people and others who are intimidated by the stock market but nevertheless, like to reap the benefits of stock market investing. At the retail level, investors are unique and are a highly heterogeneous group. Hence, designing a general product and expecting a good response will be futile, through UTI could do this nearly for three decades (1964-1987) due to its monopoly in the industry. In the second phase of oligopolistic competition (1987-1992), the public sector banks and financial institutions entered the field, but with the then existing boom condition, it was a smooth sailing for the industry. Further, the globalization and liberalization measures announced by the government led to a paradigm shift in the mindset of investors and the capital market environment become more unfriendly to retail investors. They had no other choice but to turn to MFs to reap the benefits of stock market investing. Hence, the need to be innovative in designing the product was not felt and investors had to choose from the limited schemes offered. During the third phase (1992 hence) the industry was thrown open to the private sector and the stage got set for competition. Currently there are more than 477 schemes with varied objectives and AMCs compete against one another by launching new products or repositioning old ones. Now MF industry is facing competition not only from within the industry but also from other financial products that may provide many of the same economic functions, as MFs but are not strictly MFs. For example, in US, one saving institution has patented a product that promises to deliver consumers a pay off indexed to college tuition costs, thus attempting to meet a common consumer requirement. This product is structured as a certificate of deposit, but it could have been set up as a Mutual Fund. Such products will shortly appear in the Indian market also. Other examples could be ULIP plans which are giving a good competition to MFs. All this, in aggregate, heightens the consumer confusion in his selection of the product. He is confused as to how to shift the grain from the 40

chaff? Unless the MF schemes are tailored to his changing needs, and unless the AMCs understand the fund selection/switching behavior of the investors, survival of the funds will be difficult in future. With this background an attempt is made in this project to study the factors influencing the fund/scheme selection behaviors of retail investors.

Objectives of the Study:
In order to examine the issues raised above, this survey has the following objectives before it: 1) To understand the savings avenue preference among MF investors 2) To identify the features the investors look for in Mutual Fund products. 3) To identify the schemes preference of investors. 4) To identify the factors that influencing the investor’s fund/scheme selection. 5) To identify the information sources influencing the scheme selection decision. 6) To identify the preferred communication mode.

Sample Plan:
Sampling Unit: Sample size: Sample Area: Sampling Method: Any individual above the age of 20 years and who is earning. 100 people from Ahmedabad. Maninagar, Vejalpur, Navarangpura, Sarangpur Random Sampling

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Research Instrument:
The research instrument used for primary data collection is questionnaire. The questionnaire has close ended questions. (Questionnaire is attached as Annexure) The questionnaire is supposed to be given to an individual to fill up on his own.

Importance and Benefits:
Though many MF are giving nearly 100% returns in a year, only 2% of total population has invested in MF. The research would help to understand the reasons why people invest less in MF. This research would help AMCs to understand what steps can be taken to increase the investment in MF.

Limitation of the study:
1. Sample size is limited to 150 educated investors in Ahmedabad only. The sample size may not adequately represent the National market. 2. This study has not be conducted over an extended period of the time having both market ups and downs. The market state has significance influence on the buying patterns and preferences of investors. For example, the July 2001 fall has sent violent shock waves across the MF investor community and is bound to influence the scheme preference/ selection of the investors. The study has not captured such situations. 3. We have to depend on a small sample size of investors to find out the results of the study which may become biased and this sample might be small to gather an in depth knowledge of MF. 4. Investor’s behavior is affected by various factors and in a short span of time it is not possible to study all this factors. 5. It may not be possible to take proportional sample size from each area.

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6. People might not reveal there true investment behavior in the interview. Therefore it might lead to error in judgment.

Method of Data Collection
For the purpose of understanding investor’s behavior we have collected data from both primary as well as secondary data. Survey sample is taken as 100.

Primary data-in order to collect direct information from investors we have designed a questionnaire. We have approached investors of different age and income groups. Secondary data -in secondary data we have collected articles related to investor’s behavior from different sources like internet, magazines, newspaper and documents provided by our company.

Framework of Analysis:
To understand the savings avenue preference, scheme preference, and objective for investment in MFs, and also to identify the information sources to influencing scheme selection, and the preferred mode of communication, the respondents were asked to rank their preferences on a ranking scale. The ranks were ascertained by obtaining the weighted mean value of the responses.

OBSERVATIONS:
Characteristics and Attributes of Focused & Disciplined Investor • • Taking investment as serious study, research and monitoring work and not a casual game with hear-say and hope for the best. Understand investment is a matter of timing, not blindly in long term. 43

• • •

Invest in market instrument that have potential to bring the best return, not using diversification of mix-up good apples with bad fruits. Study risk / reward carefully and prepare to exit if faced with high uncertainty to acquired gain, or preserve capital or cut loss. Make research on future scenarios of investment performance with monitoring to validate the assumptions and not to deal with uncertainty or unknown.

•

Take care of every dollar of investment to ensure its value creation.

Behavior about investing in Mutual Fund is pretty different.

• •

Most of the people are unaware of MFs or they feel it is very complicated thing. They don’t understand the philosophy of Mutual Funds. Most of the people invest in MFs only for the purpose of tax benefits. They are not very much concerned about the returns which ELSS schemes are giving but they are only concerned about getting the tax deductions.

•

Those people who want to invest in equity market but don’t have knowledge and huge amount of money to invest in share market and don’t even have ability to take high risk, mutual funds comes out to be the best option for them. These kinds of people invest heavily in mutual funds. Majority of their go in to the mutual funds.

•

Investors who are well aware of the knowledge of stock market, who can manage their portfolio, they don’t want invest in mutual funds because they get huge profits in stock market. They generally divide their investments into two parts i.e. Fixed income instruments like FDs, Bond, Debentures, PPF, NSC, etc and Stock Market. MFs is a kind of midway between these two. Even if they know about the mutual funds they are not interested. These kinds of investors are very aggressive and high risk taking. 44

•

Mutual Funds are attractive to only those people who don’t have knowledge about share market, don’t have sufficient Funds and time to track the market and don’t want to take high risks.

•

Some investors are very risk averse. They don’t want to invest in MFs just because it is an indirect investment in stock market.

People who don’t want to invest in mutual funds: • • • • Those who have never invested. Those who are unaware of mutual funds. Those who are very risk averse. Those who enjoy investing in stock market, they find MF as a boaring.

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Bird’s Eye view of the Sample Taken
No. of respondents
Female 20% Male Female Male 80%

•

The sample size of the survey is 100 people out of which 20 were males and 80 females. The survey was done without gender bias. The purpose of conducting the survey was to find out investment behavior of people who are preferably earning and have some money to invest.

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Age Group

24%

32%

20-35 35-50 above 50

44%

•

Out of these 100 people, 32 lie in the age group of 20-35 years, 44 in the age group of 35-50 years and 24 above 50 years of age. The age groups were selected in this manner because a considerable change in the knowledge and investment pattern was seen in these break-ups.

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Occupation
2% Service Student Business Retired

24%

3% 71%

•

The service class people capture the maximum share of 71%. The second largest share is of the businessman with 24%. Student (3%) and retired (2%)people were also included in the sample size but it was realized that they could not contribute much.

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Qualification
3% 34% 40%

23%

12th Graduate PG Prof. Cource

•

Around 40% people are graduates and 34% people have completed their professional courses. Here we can relate Qualification with Age group and Occupation. We find from our survey that under graduate (3%) people are not more aware about MF product. In our survey we found that the people who have done PG (23%) and Prof. Course are in service class. So it can be one of the reasons that they prefer safety in Investment so they invest in MF rather than stock market.

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Preferred Scheme 15.43%

Open Ended Close Ended 84.57%

Interpretation: Based on the duration of operation of schemes, the 1 st preference is for open- ended schemes (84.57%) and only 15.43% of the respondents favor close-ended schemes. The main reason for more investment in Open-ended scheme is no entry and exit barriers. Generally, those people who want to invest for a long period of time prefer Close-ended schemes.

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Que. 1 Are you aware about Mutual Funds?

Awareness of people

30% aware unaware 70%

Interpretation: The above graph shows that from the total 100 respondents, 70% of people are aware about Mutual Fund while 30% of people are not aware about Mutual Fund. From our survey of 100 respondents awareness of MF product is more in service class people. A large group of business class people is aware about Mutual Fund as to take risk is the nature of business class people they invest in stock market for high returns.

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Que.2 How will you describe your investment knowledge of Mutual Funds?

Investment Knowledge
5% 40% 8%

Excellent Good Average Poor

47%

Interpretation:

Out of surveyed 100 people 70 % people are aware about

Mutual fund. Out of this 70 %, 5% people have excellent knowledge, 8% people have Good knowledge, 47% people have Average knowledge about mutual fund and remaining 40% people have poor knowledge about this financial product. Having average knowledge people are mostly aware about MF concept and they also invest in Mutual Fund for a long or short period of time. Here, the service class people have average to good knowledge, they want to know more about MF but because of time constraints they are unable to do so. As we also found in our survey that having poor knowledge people just know only about MF as an Investment tool and invest in it without knowing it.

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Que.3 What is the purposes of your investments?

Purpose Of Investment
6%

9%

28%

57%

High Returns

Tax Benefits

Short-term Planning

Others

Interpretation: From the above graph we can analyze that 57% people want high returns in return of their investment while 28% people invest for the purpose of tax benefits. People having the age group of 20-35 and 35-50 want high returns from their investment. And the people having age above 50 years invest for the purpose short term planning (9%). The reason for investing for short period as they do not follow any long term planning investment with relation to their age and any time need of money.

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Que.4 For what time period do you normally invest?

Time Period
7% 3% 45%

13%

32% 6 months 3 to 5 years 6 months to 1 year > 5 years 1 year to 3 years

Interpretation: The above graph shows that more and more people i.e. 45% invest for 6 months while 32% invest for 6 months to1 year and only 3% prefer to invest for more than 5 years. From our survey we mostly find that service class people and age ranges between 20-35 invest mostly for the time period of 6 months to 1 year. We have also found that under graduate people who invest in MF are don’t want to for more than 6 months. Having professional degrees like CA, Doctors, MBA, CS etc. are like to invest for the time period of 1 year to 3 years, which are 13%. Businessperson is investing more for the period of 3 to 5 years, which are 7%.

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Que.5 Rank the investment options according to your preferences (i.e. Most Preferable-1, Least preferable-8) (Tick any one)

Investment Options
6 13.5 15.5 22.5 54.5 3 30

Fixed Deposits Post Office Stock Market Public Issues/ IPO's

PPF Mutual fund Govt. & RBI bonds LIC

Interpretation: People are habitual to invest and they have many investment options. But from our survey we find that because of safety reasons people mostly invest in Fixed Deposits and another reason we can say that from the surveyed 20% female they only go for savings for that’s why FDs (30%) have maximum 30%. Service related people are also investing in PPF(22.5%) as they found it the safer one. Post office and Mutual Fund are also popular as an investment tool as share of both 15.5% and 13.5%. While LIC is 3%, Govt. &RBI bonds is 5% and Public Issues/IPO’S is 4.5% in the total survey.

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Que. 6 If you invest in Mutual Funds, what is the share of mutual fund in your total investments?

Share of investment
75-100% 50-75% 25-50% 0-25% 0 7 18 40 35 20 40 60 Series1

Interpretation: Out 70 people 35% people said that their share of mutual funds in total investment ranges between 0-25percent. Only 40% people were having share of 25-50% as mutual fund in their total investment. While 18% people have the share of 75-100%. Now a days people are more aware about Mutual Fund and other investment tool. The proportion of savings in total income has also been increased. Another reason for more investment is that they are becoming more future conscious and so they invest more out of their total savings so that they can use their money whenever it will be needed.

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Que.7 What are the types of Mutual Fund schemes where you normally invest in?

Investment Plans
30% 5%

40% 25%
Monthly Income Funds Balanced Funds Equity Funds Debt Funds

Interpretation: The above graph shows that out of 70 people 40% invest in Equity funds. Out of remaining 60%, 30% invest in Debt funds while 25% and 5% people invest in Balanced funds and Monthly Income Fund respectively. This shows that the people who give the 1 st preference to Risk & Return factor, they invest in Equity Funds. Generally, Business class people invest more in Equity Funds because of high risk and high return. People also give more importance to NAV because the people who have average to poor knowledge give more importance to NAV and the NAV of the Equity Funds are always more than any other funds. People who don’t want to take more risk on their investment they mostly invest in Debt Funds.

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Que.9 Which are the companies in which you invest the most?

Investment in company
9 15 19 21 6 30

Reliance MF Fidelity Pru.ICICI

Franklin T empleton HDFC MF SBI

Interpretation: Reliance Mutual Fund is having the 1 st position among the 6 mutual fund companies. Franklin Templeton and Fidelity are on 2 nd and 3rd position respectively while HDFC MF is on the 4 th position with 15%. Pru. ICICI & SBI HAVE 9% and 6% share respectively. As Reliance has a good image in the mind of people who have faith in Reliance. So when Reliance entered in Mutual Fund people invest more and it results in 1 st rank among the all MF Companies. Where HDFC MF is known for the its professionalism and for this reason CRISIL has given the 1st rank to HDFC MF. HDFC is assumed to be a bit conservative for short-term investments. That’s why prefer Reliance over HDFC because of its aggressiveness.

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Que.10 What types of investing procedure do you normally follow?

Investment Procedure
15% Lumpsum SIP 85%

Interpretation: From our survey we find that people are investing in both Lump sum and SIP equally. But the people who are investing on large basis they prefer to invest in Lump sum. While service class has a tendency to invest in SIP as it is benefited on certain ways like monthly installments. Another reason for the service class people is that they don’t have more money to pay at a time. The investor does not need to spend time and effort in evaluating investments in each time interval and probably ensures that the surplus funds do not remain idle. Reason in investing in SIP is also more units allocation.

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Que.11 In what type of plan do you normally invest in?

Investment Options
Indifferent among the plan Dividend Reinvest Dividend Payout Growth Fund 0 20 40 60 3 17 15 65 80 Series1

Interpretation: The people who have good knowledge about Mutual Fund invest in Growth Fund (65%) because they get interest on capital. It means their money is compounded annually. In long run dividend reinvestment (17%) and growth fund becomes the same. In the matter of NAV growth funds are more beneficial than dividend related funds because it has very short portion of Equity.

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Que.12 At what time do you normally invest in mutual funds?

Time Of Investment
18% 42% 16% 24% NFO Any time Year Ending Whenever sufficint saving

Interpretation: From the above graph we can interpret that 42% people invest whenever they have sufficient savings on their hand. Mostly service class people are investing whenever they have sufficient saving on their hand. The reason for more percentage in Year Ending (24%) investment is the limit of Rs.1 lakh given to service class people, which is beneficial in Tax deduction. The people who have excellent to good knowledge about MF, they invest at the time of NFO i.e.18%.

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Que.13 What is your annual income (Approx)

Annual Income
15% 7% 21%

57% < Rs.1 lakh Rs. 2 to 3 lakh Rs.1 to 2 lakh > Rs. 3 lakh

Interpretation: Here the highest group of people (57%) is earning annual income of Rs. 1 to 2 lakh. It includes the Graduates and Post Graduates. While the people having annual income of Rs. 2 to 3 lakh (15%) the people are mostly professionals and businesspersons. We found that the annual incomes of more than Rs. 3 lakh are of business class and there are many professionals in this category. Income of less than Rs. 1 lakh (21%) mostly includes under graduates and people having age of more than 50.

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Que.14 What is your annual Savings (Approx)

Annual Saving
11% 3% 41% 45%

< Rs.50000 Rs.1 lakh-Rs.1.5 lakh

Rs.50000-Rs.1lakh > Rs.1.5 lakh

Interpretation: Here 45% people are having the annual saving of Rs. 50000 to 1 lakh and 41% includes the people having annual saving of less than Rs. 50000. The people having small family size can save more than large family size. The saving of retired person are not more because their income is also not more. We find that professionals and business class have annual saving of more than Rs. 1 lakh to 1.5 lakh i.e.11%.

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Que.15 How do you normally get information about Mutual Fund?

Sources of Information
6% 44% 18% 8% 24%
Friends/Associates Advertisement Agents Newspaper Internet

Interpretation: The main source of information for people is the Agents with 44% because they directly approach to the customers. Now a day the Internet users are increasing day by day and therefore 24% people are getting information through Internet. The respondents prefer to get the routine special information like daily NAV, dividend, bonus, change in asset mix etc., through Internet. While 18% people get knowledge from Newspaper and 6% from Friends.

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ANALYSIS & INTERPRETATION

The survey reveals that among the 100 respondents only 70 people were aware about the name of mutual funds. But out of 70 people 40% people did not know about the concept of mutual funds. Remaining 48 % people had average to poor knowledge about MFs. Only 7-8 % people had good knowledge of mutual funds. But the actual investors in MF were even more less. It could be hardly 5% of investor invests in MF. Average time period for investing in MF ranges between 1 to 3 years. Maximum investors invest for 1 year. It was also revealed that the most preferred investment vehicle is Fixed Deposits, with MFs ranking 4 th in the order among 8 choices given. Growth schemes are ranked first, followed by Income schemes and Balanced schemes. Based on the duration of operation of schemes, the 1 st preference is for open-ended schemes (84.57%) and only 15.43% of the respondents favor close-ended schemes. The investors look for good returns, Tax Benefits, liquidity and capital appreciation in MF products. The survey further reveals that the scheme selection decision is made by respondents on their own and the other sources influencing their selection decision are Brokers and Agents Direct Mail, News papers and Magazines, Television , Friends suggestions in that order. Further 24% of the respondents reported that they use Internet facility to know more about MFs while 76% reported that they do not have access to Internet. Further, 37.43% of the respondents prefer to get the routine special information like daily NAV, dividend, bonus, change in asset mix etc., through automated response system while 53.71% prefer personal communication and 8.86% have no preference.

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Out of 100 people only 35% people said that their share of mutual funds in total investment ranges between 0-25%. Only 40% people were having share of 2550% as mutual funds in their total investment. Most of the investors prefer 1015% minimum expected returns. Most preferred companies in Mutual fund comes out to be Reliance Mutual Fund, SBI, Franklin Templeton, Fidelity, HDFC mutual fund, Pru ICICI. HDFC rank 4 th among all the given choices. Out of every 10 people who invest in mutual funds at least 5 have invested in HDFC. HDFC is assumed to be a bit conservative for short-term investments. That’s why prefer Reliance over HDFC because of its aggressiveness. The survey indicates that the awareness of financial products in India is poor.

Mutual Funds: assured returns . While only 12 % believe that the government provides a guarantee to investors in mutual funds and just 13 % believe that the value of one’s investment in a mutual fund can not fall below Rs.10, the survey shows that investors are stuck in an “assured returns” time warp- four out of five prefer funds that guarantee returns. These are schemes heading towards extinction. It is no surprise, then, that only, 7% said they were ‘very confident’ of choosing a fund, with two out of five investors feeling ‘not confident’. Insurance: high confidence. Here we see that the fruits of familiarity-barring banks, insurance has the highest number of people (38%) saying they were ‘very confident’ of choosing life insurance, with just 7% ‘not confident’. Much of the credit for this confidence must go to LIC. However, it is disheartening to note that just 29% people buy insurance for securities against death, with savings following at 23%.

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Banks: blind faith. With almost half the people ‘very confident’ about choosing a banking product and just 3% of them ‘not confident’, this sector truly has the trust of investors, this confidence is misplaced. Almost three out of five people believe that the unfortunately government guarantee full deposits in nationalized banks. This is untrue: only Rs.1 lakh worth of deposits per bank are guaranteed; anything beyond that is not. This faith extends to financial institutions too-61% people believe the bonds of dithering institutions like IFCI and IDBI are “always safer than mutual funds”. Retirement: worrying. India’s approach to financing its retirement is a cause for worry. While 65% of the people feel that they will retire between 55 and 65, only 44% believe they will have enough savings to ensure their current standards of living post retirement. Sociological trends are too: a third of all people surveyed expect their children will take care of them post retirement, while an equal number expect they will not.

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RECOMMONDATION:
Suggestions The survey reveals that the investors are basically influenced by the intrinsic qualities of the product followed by efficient fund management and general image of the fund / scheme in their selection of fund schemes. Hence it is suggested that AMCs should design products consciously to meet the investors’ needs and should be alert to capture the changing market moods and be innovative. Continuous product development and introduction of innovative products, is a must to attract and retain this market segment. Some suggestions are:

•

The investors are influenced by the extent and quality of disclosure of information subsequent to their investment regarding disclosure of NAV, portfolio of investment and disclosure of deviation of investment from the stated objectives and the attached fringe to the scheme in their selection of the scheme. Hence AMCs should take steps to be as transparent as possible and follow the disclosure norms spelt out by SEBI and AMFI in this connection. UTI’s unique place in the industry that allowed it to be non- transparent has led to the July 2001 UTI scam. The investors were kept in dark when its income schemes portfolio of debt to equity as 70:30 got slowly tilted to 20:80. We have to wait and see the impact of such non-disclosures on future fund mobilization by UTI.

•

The falling interest rates and a reasonably good performance of many growth schemes might have been the reason for the high performance of Growth schemes during the period under study. Now the scale is in favor of income schemes. So it is suggested that AMCs should react in 68

time to the changing market moods by launching new products or repositioning old ones. Deviation from the stated investment objectives without authority should be dealt seriously by the regulatory bodies. Safety of capital subject to market risk, should be assured to the MF investor. • Since the survey reveals priority to self decision in scheme selection. Information dissemination through all possible routes which will reach the investors should be tapped in a cost effective manner by AMCs. Diagnostically looking, the fact that the investors prefer to make their own scheme selection decision, inspite of their lack of knowledge about the sophisticated market environment, reflects their reluctance to believe the available quality of service provided by the agents, financial consultants and investment advisors. These agencies and persons engaged in giving investment advice should gear up now to win the confidence of the investors. In long run it will help both the investors and the investment advisors, thus strengthening the link between the individual investors and the Mutual Funds. • As we have seen that there is 100% growth in last 6 years, so it is one of the opportunities for HDFC Mutual Fund. And so they should have to take some steps in this direction. • Number of foreign AMC's are in the queue to enter the Indian markets like Fidelity Investments, US based, with over US$1trillion assets under management worldwide. It is one of the challenge for HDFC Mutual Fund and they should have to try to come 1st among all Indian MFs.

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Conclusion:
Running a successful MF requires complete understanding of the peculiarities of the Indian stock market and also the psyche of the small invesor. This study has made an attempt to understand the financial behavior of MF investors in connection with the scheme preference and selection. The post survey developments are likely to have an influence on the findings. Behavioral trends usually take time to stabilize and they get disturbed even by a slight change in any of the influencing variables. Hence, surveys similar to the present one need to be conducted at intervals to develop useful models. Nevertheless, it is hoped that the survey findings will have some useful managerial implication for the AMCs in their product designing and marketing.

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JOB PROFILE DETAIL:
We have done our summer training in two parts. First we were given in house training by HDFC Mutual Fund for one week during which we learned about basic of Mutual Fund, its importance and the main focus was how to sell a mutual fund in a bank and how to interact with the customer regarding mutual fund as a part of investment. Second part was real job experience. We had been sent HBL Global Pvt. Ltd., (Popular House) Ashram Road, Ahmedabad as an ambassador of HDFC MF. HBL is on the pay roll of HDFC. During this period we were interacting with customer through individual calls. We have also trained the selling Agents of HBL as well as help them in operations. Following are the important points, which we used while discussing with customer regarding mutual fund:  Briefing about the mutual fund and its importance in detail.  We use to compare mutual fund with other types of financial product such as Fixed deposits, shares so that customer can understand benefits of mutual fund over the other financial product.  Basically our job was to train the employees of HBL Global Pvt. Ltd. And also to help them to sell the mutual fund.  When we go on calls with the sales person of HBL Global Pvt.Ltd we were also comparing the mutual fund of various companies and suggesting the customer which one he should buy.

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Area Assigned
We were assigned HBL Global Pvt. Ltd. Ashram Road, Ahmedabad to work with their selling agents as well as customers. Where we have to deal with HBL’s employees and customers, after completion of our 45 Days training we have done a Market Research to know the investing habits of people.

Target Assigned
We have been given monthly target to sell HDFC Mutual Fund. We have to report to HDFC AMC Assistant Manager Of Sales Ms.Ekta Hariyani regarding daily sales of HDFC mutual fund.

Day to Day job experience
During our summer training we experienced following things:  We learned about the mutual fund, its benefits and its importance as a major investment part.  We also come to know customer preferences.  We also come to know how to interact with customers.  We also come to know about market situation in the field of mutual fund.  We also come to know how AMC work.  We had also a good experience to train the employees/sales person.

Difficulty Faced:
We faced difficulty while selling a mutual fund as  Many of the customers do not have knowledge of mutual fund and its importance. 72

 Some customer don’t want to take risk as there is no guaranteed return in a mutual fund, they only want to invest in fixed deposits and government bond as there is guarantee of return, because mutual fund depends upon market.  The customers, who want to take a risk, prefer to invest their money in stock market, because it will give high return than mutual fund.  Many of the customers do not want to block money for long period.

Major Limitation:
Following are the major limitation we faced:  There is a big volatility in the market and so customer is afraid of investing mutual fund as they feel if market falls by more points they will have to face heavy losses.  They don’t have faith in the private AMC, rather they believe on the government’s schemes like UTI.

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BIBLIOGRAPHY

Internet:

 www.hdfcfund.com  www.amfiindia.com  www.mutualfundindia.com  www.nseindia.com  www.bankersindia.com  www.investindia.com  www.altavista.com  www.indiaonline.com  www.google.com

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ANNEXURE
A study on the investment behavior of people…

Questionnaire for investors
1. Are you aware about Mutual Funds?

□ □ □ □

Yes

□

No

2. How will you describe your Investment Knowledge of mutual funds? Excellent Average 3. What are the purposes of your investments? □ High Return □ Short Term Planning Tax Benefits

□ Good □ Poor

□

If Others ________

4. For what time period do you normally invest?

□ □ □

Less than 6 months 1 year to 3 years More than 5 years

□ □ □

6 months to 1 year 3 years to 5 years If Others ________

5. Rank the investment options according to your preferences (i.e. Most Preferable-1, Least preferable-8)(Tick any one) a. Post Offices b. Fixed Deposits c. LIC d. Govt. & RBI bonds e. PPF f. Public issues/ IPO’s g. Mutual Funds h. Stock market

□ □ □ □ □ □ □ □
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6. If you invest in Mutual Funds, what is the share of mutual funds in your total Investments?

□ □

0% -25% 50% -75%

□ □

25% -50% 75% -100%

7. What are the types of mutual fund scheme where you normally invest in? □ Monthly Income Funds □ Equity Funds

□

Balanced Funds

□

Debt Funds

8. The minimum return that you normally expect in a year is _______% 9. Which are the companies in which you invest the most (Rank according to Preferences). □ HDFC MF _______

□ □ □ □ □ □

Franklin Templeton SBI MF Reliance MF Pru ICICI Fidelity If, Others

_______ _______ _______ _______ _______ _______

10. What types of investing procedure do you normally follow? (Tick) □ Payment in Lumpsum (One Time)

□

Payment in Systematic Investment Plan

11. In what type of plan do you normally invest in? □ Growth Fund □ Dividend Payout

□

Dividend Reinvest

□

Indifferent among the plans

12. At what time do you normally invest in mutual funds? □ At the time of NFO □ At year ending (31st March)

□

Any time of the year

□ Whenever sufficient savings have

13. What is your annual income (Approx) □ Less than Rs. 1 lakh □ Rs. 1lakh to Rs. 2 lakh 76

□

Rs. 2 lakh to Rs.3lakh

□

More than Rs. 3 lakh

14. What is your annual Savings (Approx) □ Less than Rs. 50000 □ Rs.50000 to Rs. 1 lakh

□

Rs.1 lakh-Rs.1.5 lakh

□

More than Rs.1.5 lakh

15. How do you normally get information about Mutual Fund? □ Friend / Associates □ Newspapers □ Advertisements

□ □

Internet which sites please specify _______________________ Agents

16. Do you invest in HDFC Mutual Fund? □ Yes □ No

……. To be filled if the response of Question16 is Yes
17. In which Fund of HDFC mutual fund have you invested? ______________________________________________________. 18. Can you suggest any other facilities HDFC mutual fund can provide you / facilities you want HDFC mutual fund to provide you. _______________________________________________________ _______________________________________________________ _________________________. 19. Remarks: _______________________________________________________ _______________________________________________________ _______________________________________________________ _________________________. Name: ____________________ Age:____ Gender:_______ Family Size:____________Marital status:_______________ Occupation:________________Education:______________ Phone:_____________ Address:______________________

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