LOVELY PROFESSIONAL UNIVERSITY

DEPARTMENT OF MANAGEMENT

REPORT ON SUMMER TRAINING

ON
Evaluating different mutual fund schemes for HNIs
AT

SUBMITTED TO LOVELY PROFESSIONAL UNIVERSITY

In partial fulfillment of the
Requirements for the award of Degree of
Master of Business Administration
Submitted by:
Pankaj Attri
11300645
DEPARTMENT OF MANAGEMENT
LOVELY PROFESSIONAL UNIVERSITY
JALANDHAR NEW DELHI GT ROAD
PHAGWARA
PUNJAB

INDEX
S.N0.

TOPIC

EXECUTIVE SUMMARY

INTRODUCTION

RELIANCE CAPITAL

ABOUT RELIANCE MONEY

RELIANCE ADA GROUP STRUCTURE

STRUCTURE OF RELIANCE SECURITIES

ABOUT RELIANCE MUTUAL FUND AND ORIGIN OF INVESTING

IN MUTUAL FUNDS

INTRODUCTION ABOUT MUTUAL FUNDS

MUTUAL FUND INDUSTRY IN INDIA AND ITS PHASES

TYPES OF MUTUAL FUNDS SCHEMES IN INDIA

NET ASSET VALUE (NAV) AND ITS CALCULATION

10

MUTUAL FUNDS DISTRIBUTION CHANNELS

11

SELECTION PARAMETERS FOR MUTUAL FUND

12

Why Select Mutual Fund?

13

ADVANTAGES OF MUTUAL FUNDS:

14

DISADVANTAGES OF INVESTING THROUGH MUTUAL FUNDS

15

REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA

16

MUTUAL FUND COMPANIES IN INDIA

17

HIGH NET WORTH INDIVIDUAL (HNI)

18

Literature Review:

19

RESEARCH METHODOLOGY

20

QUESTIONNAIRE TO ANALYSE PERCEPTIONS OF PEOPLES FOR

MUTUAL FUNDS

21

DATA ANALYSIS & INTERPRETATION

22

FINDINGS

23

SUGGESTIONS

24

CONCLUSION

25

BIBLIOGRAPHY

CERTIFICATE

This is to certify that the project work done Evaluating different mutual fund schemes for
HNIs
is an original work carried out by Mr. Pankaj Attri under my supervision and guidance.

The project report is submitted towards the partial fulfillment of the Requirements for the
award of Degree of Master of Business Administration

This work has not been submitted anywhere else for any other degree/diploma. The work was
carried out from 13th June, 2014 to 29th July, 2014 in Reliance Securities.

Name & Sign of Industry Guide

Name & Sign of Faculty

GURVINDER WALIA
(Relationship Manager)

Date:
Students Name and Sign
Pankaj Attri

Roll No.:-MBA- 11300645

DECLARATION

I PANKAJ ATTRI hereby declare that the Project report entitled done Evaluating different
mutual fund schemes for HNIs at Reliance Securities, Chandigarh under the guidance of Mr.

Gurvinder Walia submitted for the fulfillment of the requirement for the award of degree of Post
Graduate LOVELY PROFESSIONAL UNIVERSITY is my original work and not submitted
for the award of any degree, diploma, fellowship or other similar titles or prizes to any other
institution/organization or university by any other person.

Project Guide:GURVINDER WALIA

(Relationship Manager)

Date:
Place: Panipat

PANKAJ ATTRI

ACKNOWLEDGEMENT
A drop of ink makes million think

Although training work is based on ones shoulder but many remains unseen. Any research is
never an individual effort. It is contributory efforts of many hearts, hand and heads.
I would like to express my heartfelt thanks to many people. This dissertation is an effort to
contribute towards achieving the desired objectives. In doing so, I have optimized all available
resources and made use of some external resources, the interplay of which, over a period of time,
led to the attainment of the set goals.
I take here a great opportunity to express my sincere and deep sense of gratitude to my mentor
Mr. Sarabjeet sing suri, Lovely professional university, for her valuable suggestion and guidance
at regular interval in completion of the project. The support & guidance from sir, was of great
help & it was extremely valuable.
I owe my special thanks to all the staff members of reliance securities Chandigarh
Last but not the least, I also express my sincere thanks to all the people who, directly or
indirectly, contributed in time, energy and knowledge to this effort.

Pankaj Attri

PREFACE
Knowledge has two aspects- theoretical and practical and no theoretical concept is complete
without having knowledge of its practical application. A few weeks professional training
program was introduced as a part of curriculum of MBA. This summer training program proves

really beneficial to the future managers as they are confronted with the problems of actual work
environment during their training period.

As per curriculum requirement, I did 6 weeks training in RELIANCE SECURITIES,

CHANDIGARH Working in such a big concern, no matter for a very small period was really a
matter of pride. As my specialization is Finance, so my major area of work in the concern was
confined to the Finance Department. And moreover it was not possible for me to cover all the
areas of Finance Department in such a short period of time so I concentrated my working on the
project assigned to me i.e. Evaluating different mutual fund schemes for HNIs. and some
basic knowledge about demat account
So the learning during the training in RELIANCEC SECURITIES. a report of that is being
presented in the following pages.

Pankaj Attri

EXECUTIVE SUMMARY
I had undertaken a project titled evaluating the different mutual fund schemes for HNIs This
project work consists of the analytical and different schemes of mutual funds which Reliance
Money which provides to give the concept of what is the difference in their schemes. The

methodology that was adopted for framing the project was primary and secondary data. This
project is restricted to Chandigarh area only. In my project, I have shown the different products
and utility of it to the customer. This project highlights on the peculiarities of the product since
they are traded in the market.

The project was studied with the help of brochure, magazine

and net. Even a dialogue was carried with the top executive so that it can help me to shape my
project and get the exact idea where the position of product lies and its status.
Customers are the king. They were interviewed and their opinion was taken into consideration so
that I can correlate my information with the theory part. Since customers were rigid they didnt
reveal the exact information about the product .Even keeping in mind the duration of the project
there were certain limitations for it. As people were not ready to spare some time and discuss the
product or answer to the query raised by me. So, I have to drawn some of the conclusion on the
basis of the brochures and material of the company being provided.

INTRODUCTION
RELIANCE CAPITAL

Reliance Capital Ltd is a part of the Reliance - Anil Dhirubhai Ambani Group, and is ranked
among the 25 most valuable private companies in India. Reliance Capital is one of India's
leading and fastest growing private sector financial services companies, and ranks among the top
3 private sector financial services and banking groups, in terms of net worth. Reliance Capital
has interests in asset management and mutual funds, life and general insurance, private equity
and proprietary investments, stock broking, depository services, distribution of financial
products, consumer finance and other activities in financial services. The Reliance Anil
Dhirubhai Ambani Group is one of India's top 2 business houses, and has a market capitalization
of over Rs.2,90,000 crore (US$ 75 billion), net worth in excess of Rs.55,000 crore (US$ 14
billion), cash flows of Rs. 11,000 crore (US$ 2.8 billion) and net profit of Rs. 7,700 crore (US$
1.9 billion). Reliance Capital Ltd. is a Non-Banking Financial Company (NBFC) registered with
the Reserve Bank of India under section 45-IA of the Reserve Bank of India Act, 1934. RCL was
incorporated as a public limited company in 1986 and is now listed on the Bombay Stock
Exchange and the National Stock Exchange (India). With a net worth of over Rs 3,300 crore and
over 165,000 shareholders, Reliance Capital has established its presence as a leading player in
the financial services sector in the country. On conversion of outstanding equity instruments, the
net worth of the company will increase to about Rs 4,100 crore. Reliance Capital sees immense
potential in the rapidly growing financial services sector in India and aims to become a dominant
player in this industry and offer fully integrated financial services. It is headed by Anil Ambani.
Reliance Capital is one of Indias leading and fastest growing private sector financial services
companies, and ranks among the top 3 private sector financial services and banking companies,
in terms of net worth. Reliance Capital has interests in asset management and mutual funds, life
and general insurance, private equity and proprietary investments, stock broking and other
activities in financial services.
About Reliance Money:
Reliance Money is a group company of Reliance Capital; one of India's leading and
fastest growing private sector financial services companies, ranking among the top 3
private sector financial services and banking companies, in terms of net worth. Reliance
Capital is a part of the Reliance Anil Dhirubhai Ambani Group.
Reliance Money which commenced commercial operations in April 2007 has over
300,000 customers and 4,300 outlets in more than 3,500 locations across India.

Reliance Money is a comprehensive electronic transaction platform offering a wide range

of asset classes. Its Endeavour is to change the way India transacts in financial markets
and avails financial services. Reliance Money is a single window, enabling you to access,
amongst others in Equities, Equity & Commodities Derivatives, Mutual Funds, IPOs,
Life & General Insurance products, Off share Investments, Money Transfer, Money
Changing and Credit Cards.

Management Team
Chairman
CEO
Deputy CEO
National Head
Regional Head
Cluster Head
Center Managers

: Mr. Anil Dhirubhai Ambani

: Mr. Sudip Bandhupadhyay
: Mr. Kapil Bali
: Mr. Anshu Azare
: Mr. Ritu Raj chauhan
: Navdeep Kaur
: Sandeep saini

BOARD OF DIRECTORS

10

Anil Ambani, Chairman

Amitabh Jhunjhunwala, Vice-Chairman

Rajendra Chitale, Independent Director

Shri C. P. Jain

Success is a journey, not a destination. If we look for examples to prove this quote then we
can find many but there is none like that of Reliance Money. The company which is today known
as the largest financial service provider of India.

11

SUCCESS SUTRAS OF RELIANCE MONEY

The success story of the company is driven by 9 success sutras adopted by it namely
Trust, Integrity, Dedication, Commitment, Enterprise, Hard work, Homework, Team work
play, Learning and Innovation, Empathy and
Humility and last but not the least its the Network.

VISION OF RELIANCE MONEY

To achieve & sustain market leadership, Reliance Money shall aim for complete customer
satisfaction, by combining its human and technological resources, to provide world class
quality services. In the process Reliance Money shall strive to meet and exceed customer's
satisfaction and set industry standards.
MISSION STATEMENT

Our mission is to be a leading and preferred service provider to our customers, and we aim to
achieve this leadership position by building an innovative, enterprising , and technology
driven organization which will set the highest standards of service and business ethics.

RELIANCE ADA GROUP STRUCTURE

12

STRUCTURE OF RELIANCE SECURITIES

CHAIRMAN (MR. ANIL AMBANI)

13

GROUP CHAIRMAN/ CEO

(MR. AMITABH JHUN JHUN
WALA)
CHIEF EXECUTIVE OFFICER
(MR. SAM GHOSH)

EXECUTIVE DIRECTOR (MR.

VIKRANT)
NATIONAL HEAD (MR. RAJIV
RATAN)
SEGMENT HEAD (MR. NISHANT
SRIVASTAV)
AREA HEAD (MR. VINEET )

BRANCH HEAD (MR. MANISHA

GUPTA)

DIRECT

RM

DEALER

INDIRECT

RMA

SERVICE
MANAGE
R

FRANCHISE
PARTNER
CM

ABOUT RELIANCE MUTUAL FUND:

Reliance Mutual Fund (RMF) is one of Indias leading Mutual Funds, with Average
Assets Under Management (AAUM) of Rs. 84563.92 Crs (AAUM for June 30th 08 ) and
an investor base of over 68.38 Lakhs.
14

Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani Group, is one of
the fastest growing mutual funds in the country.
RMF offers investors a well-rounded portfolio of products to meet varying investor
Requirements and has presence in 118 cities across the country.
Reliance Mutual Fund constantly endeavors to launch innovative products and customer
service initiatives to increase value to investors.
"Reliance Mutual Fund schemes are managed by Reliance Capital Asset Management
Limited., a subsidiary of Reliance Capital Limited, which holds 93.37% of the paid-up
capital of RCAM, the balance paid up capital being held by minority shareholders."
Reliance Capital Ltd. is one of Indias leading and fastest growing private sector financial
services companies, and ranks among the top 3 private sector financial services and
banking companies, in terms of net worth.
Reliance Capital Ltd. has interests in asset management, life and general insurance,
private equity and proprietary investments, stock broking and other financial services.
ORIGIN OF MUTUAL FUND INVESTING:When three Boston Securities executives pooled their money together in 1924 to create
the first mutual fund, they have no idea how popular mutual funds would become. The
idea of pooling money for investing purposes started in Europe in mid 1800s. The first
pooled in the US was created in 1893 for the faculty and staff of Harvard University. On
March 21st, 1924 the first official mutual fund was born. It was called the Massachusetts
Investors Trust. After one year the Massachusetts Investor Trust grew from $ 50000 in
assets to 3, 92,000 in assets (with around 200 share holders). In contrast there are more
than 10000 mutual funds in US today totaling around $7 trillion (with approximately 83
million individual investors) according to the Investment Company Institute

INTRODUCTION ABOUT MUTUAL FUNDS

A Mutual Fund is a trust that pools the savings of a number of investors w ho share a common
financial goal. A Mutual Fund is the most suitable investment for the common man as it offers an

15

opportunity to invest in a well-diversified portfolio of equities, bonds and other securities,

professionally managed basket of securities at a relatively low cost.
Mutual Funds are financial intermediaries. They are companies set up to receive investors
money, and then having received it, make investments with the money Via an AMC. It is a good
opportunity for the people who want to invest but do not want to be bothered with decoding the
numbers and deciding whether the stock they purchased is a good deal or not.
A mutual fund manager proceeds to buy a number of stocks from various markets and industries.
Depending on the amount investor (we) invest, owns part of the overall fund. The beauty of
mutual funds is that anyone with an investible surplus of a few hundred rupees can invest and
reap returns as high as those provided by the equity markets or have a steady and comparatively
secure investment as offered by debt instruments
Mutual Fund Operation Flow Chart

Organization of a Mutual Fund

16

Mutual Funds Industry in India:The origin of mutual fund industry in India is with the introduction of the concept of
mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated
from the year 1987 when non-UTI players entered the industry.
In the past decade, Indian mutual fund industry had seen dramatic improvements, both
quality wise as well as quantity wise. Before, the monopoly of the market had seen an
ending phase; the Assets Under Management (AUM) was Rs. 67bn. The private sector
entry to the fund family raised the AUM to Rs. 470 bn in March 1993 and till April 2004;
it reached the height of 1,540 bn.
Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is
less than the deposits of SBI alone, constitute less than 11% of the total deposits held by
the Indian banking industry.

The main reason of its poor growth is that the mutual fund industry in India is new in the
country. Large sections of Indian investors are yet to be intellectuated with the concept.
Hence, it is the prime responsibility of all mutual fund companies, to market the product
correctly abreast of selling.

17

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.

Phases of mutual funds

First Phase - 1964-87:Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. 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.
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

18

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.
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.

The graph indicates the growth of assets under management over the years.

19

GROWTH IN ASSETS UNDER MANAGEMENT

TYPES OF MUTUAL FUNDS SCHEMES IN INDIA

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial
position, risk tolerance and return expectations etc. thus mutual funds has Variety of flavors,
Being a collection of many stocks, an investors can go for picking a mutual fund might be easy.
There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual
funds in categories, mentioned below.

20

A). BY STRUCTURE
1. Open - Ended Schemes:
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.
2. Close - Ended Schemes:
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.

21

3. Interval Schemes:
Interval Schemes are that scheme, which combines the features of open-ended and closeended schemes. The units may be traded on the stock exchange or may be open for sale or
redemption during pre-determined intervals at NAV related prices.
B). BY NATURE
1. Equity Fund:
These funds invest a maximum part of their corpus into equities holdings. The structure
of the fund may vary different for different schemes and the fund managers outlook on different
stocks. The Equity Funds are sub-classified depending upon their investment objective, as
follows:

Diversified Equity Funds

Mid-Cap Funds

Sector Specific Funds

Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on

the risk-return matrix.

2. Debt Funds:
The objective of these Funds is to invest in debt papers. Government authorities, private
companies, banks and financial institutions are some of the major issuers of debt papers. By
investing in debt instruments, these funds ensure low risk and provide stable income to the
investors. Debt funds are further classified as:

Gilt Funds: Invest their corpus in securities issued by Government, popularly known as
Government of India debt papers. These Funds carry zero Default risk but are associated
with Interest Rate risk. These schemes are safer as they invest in papers backed by
Government.

Income Funds: Invest a major portion into various debt instruments such as bonds,
corporate debentures and Government securities.

22

MIPs: Invests maximum of their total corpus in debt instruments while they take
minimum exposure in equities. It gets benefit of both equity and debt market. These
scheme ranks slightly high on the risk-return matrix when compared with other debt
schemes.

Short Term Plans (STPs): Meant for investment horizon for three to six months. These
funds primarily invest in short term papers like Certificate of Deposits (CDs) and
Commercial Papers (CPs). Some portion of the corpus is also invested in corporate
debentures.

Liquid Funds: Also known as Money Market Schemes, These funds provides easy
liquidity and preservation of capital. These schemes invest in short-term instruments like
Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for
short-term cash management of corporate houses and are meant for an investment
horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are
considered to be the safest amongst all categories of mutual funds.

3. Balanced Funds:
As the name suggest they, are a mix of both equity and debt funds. They invest in both
equities and fixed income securities, which are in line with pre-defined investment objective of
the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part
provides growth and the debt part provides stability in returns.
Further the mutual funds can be broadly classified on the basis of investment parameter viz,
Each category of funds is backed by an investment philosophy, which is pre-defined in the
objectives of the fund. The investor can align his own investment needs with the funds objective
and invest accordingly.

23

C). BY INVESTMENT OBJECTIVE:

Growth Schemes:
Growth Schemes are also known as equity schemes. The aim of these schemes is to
provide capital appreciation over medium to long term. These schemes normally invest a major
part of their fund in equities and are willing to bear short-term decline in value for possible
future appreciation.
Income Schemes:
Income Schemes are also known as debt schemes. The aim of these schemes is to provide
regular and steady income to investors. These schemes generally invest in fixed income
securities such as bonds and corporate debentures. Capital appreciation in such schemes may be
limited.
Balanced Schemes:
Balanced Schemes aim to provide both growth and income by periodically distributing a
part of the income and capital gains they earn. These schemes invest in both shares and fixed
income securities, in the proportion indicated in their offer documents (normally 50:50).
Money Market Schemes:
Money Market Schemes aim to provide easy liquidity, preservation of capital and
moderate income. These schemes generally invest in safer, short-term instruments, such as
treasury bills, certificates of deposit, commercial paper and inter-bank call money.
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.

24

OTHER SCHEMES
Tax Saving Schemes:
Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time
to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings
Scheme (ELSS) are eligible for rebate.
Index Schemes:
Index schemes attempt to replicate the performance of a particular index such as the BSE
Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that
constitute the index. The percentage of each stock to the total holding will be identical to the
stocks index weightage. And hence, the returns from such schemes would be more or less
equivalent to those of the Index.
Sector Specific Schemes:
These are the funds/schemes which invest in the securities of only those sectors or industries as
specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods
(FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of
the respective sectors/industries. While these funds may give higher returns, they are more risky
compared to diversified funds. Investors need to keep a watch on the performance of those
sectors/industries and must exit at an appropriate time.
NET ASSET VALUE (NAV):
Since each owner is a part owner of a mutual fund, it is necessary to establish the value of
his part. In other words, each share or unit that an investor holds needs to be assigned a value.
Since the units held by investor evidence the ownership of the funds assets, the value of the total
assets of the fund when divided by the total number of units issued by the mutual fund gives us
the value of one unit. This is generally called the Net Asset Value (NAV) of one unit or one
share. The value of an investors part ownership is thus determined by the NAV of the number of
units held.

25

Calculation of NAV:
Let us see an example. If the value of a funds assets stands at Rs. 100 and it has 10
investors who have bought 10 units each, the total numbers of units issued are 100, and the value
of one unit is Rs. 10.00 (1000/100). If a single investor in fact owns 3 units, the value of his
ownership of the fund will be Rs. 30.00(1000/100*3). Note that the value of the funds
investments will keep fluctuating with the market-price movements, causing the Net Asset Value
also to fluctuate. For example, if the value of our funds asset increased from Rs. 1000 to 1200,
the value of our investors holding of 3 units will now be (1200/100*3) Rs. 36. The investment
value can go up or down, depending on the markets value of the funds assets.
MUTUAL FUNDS DISTRIBUTION CHANNELS
Investors have varied investment objectives and can be classified as aggressive, moderate and
conservative, depending on their risk profile. For each of these categories, asset management
companies (AMCs) devise different types of fund schemes, and it is important for investors to
buy those that match their investment goals.
Funds are bought and sold through distribution channels, which play a significant role in
explaining to the investors the various schemes available, their investment style, costs and
expenses. There are two types of distribution channels-direct and indirect. In case of the former,
the investors buy units directly from the fund AMC, whereas indirect channels include the
involvement of agents. Let us consider these distribution channels in detail.
Direct channel
This is good for investors who do not need the advisory services of agents and are well-versed
with the fundamentals of the fund industry. The channel provides the benefit of low cost, which
significantly enhances the returns in the long run.
Indirect channel
This channel is widely prevalent in the fund industry. It involves the use of agents, who act as
intermediaries between the fund and the investor. These agents are not exclusive for mutual
funds and can deal in multiple financial instruments. They have an in-depth knowledge about the

26

functioning of financial instruments and are in a position to act as financial advisers. Here are
some of the players in the indirect distribution channels.
a) Independent financial advisers (IFA): These are individuals trained by AMCs for selling their
products. Some IFAs are professionally qualified CFPs (certified financial planners). They help
investors in choosing the right fund schemes and assist them in financial planning. IFAs manage
their costs through the commissions that they earn by selling funds.
b) Organized distributors: They are the backbone of the indirect distribution channel. They have
the infrastructure and resources for managing administrative paperwork, purchases and
redemptions. These distributors cater to the diverse nature of the investor community and the
vast geographic spread of the country by establishing offices in rural and semi urban locations.
c) Banks: They use their network to sell mutual funds. Their existing customer base serves as a
captive prospective investor base for marketing funds. Banks also handle wealth management for
their clients and manage portfolios where mutual funds are one of the asset classes. The players
in the indirect channel assist investors in buying and redeeming fund units.
They try to understand the risk profile of investors and suggest fund schemes that best suits their
objectives. The indirect channel should be preferred over the direct channel when investors want
to seek expert advice on the risk-return mix or need help in understanding the features of the
financial securities in which the fund invests as well as other important attributes of mutual
funds, such as benchmarking and tax treatment.

27

SELECTION PARAMETERS FOR MUTUAL FUND

Your objective:
The first point to note before investing in a fund is to find out whether your objective
matches with the scheme. It is necessary, as any conflict would directly affect your prospective
returns. Similarly, you should pick schemes that meet your specific needs. Examples: pension
plans, childrens plans, sector-specific schemes, etc.
Your risk capacity and capability:
This dictates the choice of schemes. Those with no risk tolerance should go for debt
schemes, as they are relatively safer. Aggressive investors can go for equity investments.
Investors that are even more aggressive can try schemes that invest in specific industry or
sectors.
Fund Managers and scheme track record:
Since you are giving your hard earned money to someone to manage it, it is imperative
that he manages it well. It is also essential that the fund house you choose has excellent track
record. It also should be professional and maintain high transparency in operations. Look at the
performance of the scheme against relevant market benchmarks and its competitors. Look at the
performance of a longer period, as it will give you how the scheme fared in different market
conditions.
Cost factor:
Though the AMC fee is regulated, you should look at the expense ratio of the fund before
investing. This is because the money is deducted from your investments. A higher entry load or
exit load also will eat into your returns. A higher expense ratio can be justified only by
superlative returns. It is very crucial in a debt fund, as it will devour a few percentages from your
modest returns.

Also, Morningstar rates mutual funds. Each year end, many financial publications list the
year's best performing mutual funds. Naturally, very eager investors will rush out to purchase
shares of last year's top performers. That's a big mistake. Remember, changing market conditions

28

make it rare that last year's top performer repeats that ranking for the current year. Mutual fund
investors would be well advised to consider the fund prospectus, the fund manager, and the
current market conditions. Never rely on last year's top performers.
Why Select Mutual Fund?
The risk return trade-off indicates that if investor is willing to take higher risk then
correspondingly he can expect higher returns and vise versa if he pertains to lower risk
instruments, which would be satisfied by lower returns. For example, if an investors opt for
bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest in
capital protected funds and the profit-bonds that give out more return which is slightly higher as
compared to the bank deposits but the risk involved also increases in the same proportion.
Thus investors choose mutual funds as their primary means of investing, as Mutual funds
provide professional management, diversification, convenience and liquidity. That doesnt mean
mutual fund investments risk free.
This is because the money that is pooled in are not invested only in debts funds which are
less riskier but are also invested in the stock markets which involves a higher risk but can expect
higher returns. Hedge fund involves a very high risk since it is mostly traded in the derivatives
market which is considered very volatile.
RETURN RISK MATRIX
HIGHIER RISK
MODERATE RETURNS

HIGHER RISK
HIGHIER RETURNS

Ventur
e
Capita
l

Equi
ty

Bank
FD
Postal
Savings
LOWER RISK
LOWER RETURNS

Mutu
al
Funds
LOWER RISK
HIGIER RETURNS

29

ADVANTAGES OF MUTUAL FUNDS:

If mutual funds are emerging as the favorite investment vehicle, it is because of the many
advantages they have over other forms and the avenues of investing, particularly for the investor
who has limited resources available in terms of capital and the ability to carry out detailed
research and market monitoring. The following are the major advantages offered by mutual
funds to all investors:
1. Portfolio Diversification:
Each investor in the fund is a part owner of all the funds assets, thus enabling him to
hold a diversified investment portfolio even with a small amount of investment that would
otherwise require big capital.
2. 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 into available
investment options, ensure a much better return than what an investor can manage on his own.
Few investors have the skill and resources of their own to succeed in todays fast moving, global
and sophisticated markets.
3. Reduction/Diversification Of Risk:
When an investor invests directly, all the risk of potential loss is his own, whether he
places a deposit with a company or a bank, or he buys a share or debenture on his own or in any
other from. While investing in the pool of funds with investors, the potential losses are also
shared with other investors. The risk reduction is one of the most important benefits of a
collective investment vehicle like the mutual fund.

30

4. Reduction Of Transaction Costs:

What is true of risk as also true of the transaction costs. The investor bears all the costs of
investing such as brokerage or custody of securities. When going through a fund, he has the
benefit of economies of scale; the funds pay lesser costs because of larger volumes, a benefit
passed on to its investors.
5. Liquidity:
Often, investors hold shares or bonds they cannot directly, easily and quickly sell. When
they invest in the units of a fund, they can generally cash their investments any time, by selling
their units to the fund if open-ended, or selling them in the market if the fund is close-end.
Liquidity of investment is clearly a big benefit.
6. Convenience And Flexibility:
Mutual fund management companies offer many investor services that a direct market
investor cannot get. Investors can easily transfer their holding from one scheme to the other; get
updated market information and so on.
7. Tax Benefits:
Any income distributed after March 31, 2002 will be subject to tax in the assessment of
all Unit holders. However, as a measure of concession to Unit holders of open-ended equityoriented 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 upto Rs. 9,000 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 WealthTax and Gift-Tax.
8. Choice of Schemes:
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.
9. Well Regulated:

31

All Mutual Funds are registered with SEBI and they function within the provisions of strict
regulations designed to protect the interests of investors. The operations of Mutual Funds are
regularly monitored by SEBI.
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
DISADVANTAGES OF INVESTING THROUGH MUTUAL FUNDS:
1. No Control Over Costs:
An investor in a mutual fund has no control of the overall costs of investing. The investor
pays investment management fees as long as he remains with the fund, albeit in return for the
professional management and research. Fees are payable even if the value of his investments is
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 mutual
fund services.
2. No Tailor-Made Portfolio:
Investors who invest on their own can build their own portfolios of shares and bonds and
other securities. Investing through fund means he delegates this decision to the fund managers.
The very-high-net-worth individuals or large corporate investors may find this to be a constraint
in achieving their objectives. However, most mutual fund managers help investors overcome this
constraint by offering families of funds- a large number of different schemes- within their own
management company. An investor can choose from different investment plans and constructs a
portfolio to his choice.
3. Managing A Portfolio Of Funds:
Availability of a large number of 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, quite
similar to the situation when he has individual shares or bonds to select.

32

4. The Wisdom Of Professional Management:

That's right, this is not an advantage. The average mutual fund manager is no better at
picking stocks than the average nonprofessional, but charges fees.
5.

No Control:
Unlike picking your own individual stocks, a mutual fund puts you in the passenger seat

of somebody else's car

6. Dilution:
Mutual funds generally have such small holdings of so many different stocks that
insanely great performance by a fund's top holdings still doesn't make much of a difference in a
mutual fund's total performance.
7. Buried Costs:
Many mutual funds specialize in burying their costs and in hiring salesmen who do not
make those costs clear to their clients.
Risks involved in investing in Mutual Funds
Mutual Funds do not provide assured returns. Their returns are linked to their performance.
They invest in shares, debentures and deposits. All these investments involve an element of
risk. The unit value may vary depending upon the performance of the company and
companies may default in payment of interest/principal on their debentures/bonds/deposits.
Besides this, the government may come up with new regulation which may affect a particular
industry or class of industries. All these factors influence the performance of Mutual Funds.

33

Types of Returns on Mutual Fund:

There are three ways, where the total returns provided by mutual funds can be enjoyed by
investors:

Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly
all income it receives over the year to fund owners in the form of a distribution.

If the fund sells securities that have increased in price, the fund has a capital gain. Most
funds also pass on these gains to investors in a distribution.

If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase
in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you
a choice either to receive a check for distributions or to reinvest the earnings and get more
shares.

34

REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA:

The structure of mutual funds in India is guided by the SEBI. Regulations, 1996.These
regulations make it mandatory for mutual fund to have three structures of sponsor trustee and
asset Management Company. The sponsor of the mutual fund and appoints the trustees. The
trustees are responsible to the investors in mutual fund and appoint the AMC for managing the
investment portfolio. The AMC is the business face of the mutual fund, as it manages all the
affairs of the mutual fund. The AMC and the mutual fund have to be registered with SEBI.
MUTUAL FUND COMPANIES IN INDIA:
The concept of mutual funds in India dates back to the year 1963. The era between 1963 and
1987 marked the existence of only one mutual fund company in India with Rs. 67bn assets under
management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By the end
of the 80s decade, few other mutual fund companies in India took their position in mutual fund
market.
The new entries of mutual fund companies in India were SBI Mutual Fund, Canbank
Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of India
Mutual Fund.
The succeeding decade showed a new horizon in Indian mutual fund industry. By the end
of 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds started
penetrating the fund families. In the same year the first Mutual Fund Regulations came into
existance with re-registering all mutual funds except UTI. The regulations were further given a
revised shape in 1996.
Kothari Pioneer was the first private sector mutual fund company in India which has now
merged with Franklin Templeton. Just after ten years with private sector players penetration, the
total assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund companies in India.

35

Major Mutual Fund Companies in India

ABN AMRO Mutual Fund

Reliance Mutual Fund

Birla Sun Life Mutual Fund

Standard Chartered Mutual Fund

Bank of Baroda Mutual Fund

Franklin Templeton India Mutual

Fund

HDFC Mutual Fund

Morgan Stanley Mutual Fund

India

HSBC Mutual Fund

ING Vysya Mutual Fund

Alliance Capital Mutual Fund

Prudential ICICI Mutual Fund

Benchmark Mutual Fund

State Bank of India Mutual Fund

Canbank Mutual Fund

Tata Mutual Fund

Unit Trust of India Mutual Fund

Escorts Mutual Fund

Chola Mutual Fund

LIC Mutual Fund

36

High net worth individual (HNI)

High net worth individual (HNI) is a classification used by the financial services industry to
denote an individual or family with high net worth. The cut-off for this designation is imprecise
i.e. some companies use the term to denote individuals with over $100,000 in assets, while other
companies use $500,000. Although there is no precise definition of how rich somebody must be
to fit into this category, high net worth is generally quoted in terms of liquid assets over a certain
figure. The categorization is relevant because high net worth individuals generally qualify for
separately managed investment accounts instead of regular mutual funds. HNIs are in high
demand by private wealth managers. The more money a person has, the more work it takes to
maintain and preserve those assets. These individuals generally demand (and can justify)
personalized services in investment management, estate planning, tax planning etc.
Who is a High Net Worth Individual (HNI)?

While there is no standard definition of HNIs

They can be based on Net Worth, Investible surplus, assets under advise

Most common standard in India

Emerging HNI: Investible surplus of Rs. 25 lac - Rs. 2 cr.

HNI: Investible surplus of over Rs. 2 cr.

How should a HNI approach his financials?

HNIs should start by identifying needs on the following broad parameters
Financial Needs
1. Investments
Three primary objectivesWealth accumulation
Wealth preservation
Liquidity

37

Holistic view of wealth

Personal wealth
Business wealth
2. Protection
Protection solutions to safeguard their
Wealth
Health
Assets
Against Liabilities
These needs are typically overlooked by HNIs
3. Credit
Two basic requirements
Leverage investments
Liquidity

Across

Personal - home loan, IPO funding

Business - working capital and term loans, promoter funding
4. Inheritance planning
Need for smooth transfer of wealth to next generation
Tax efficient
Appropriate legal structures
5. Tax planning
Inherent part of any financial decision
Post tax returns

38

Tax deductibility

Indian HNI Population on the Rise

The number of high net worth individuals (HNIs or individuals with investable assets of $1
million or more) in India has grown for the second straight year.
India's HNI population grew at 20.8% to 1.53,000 in 2010 compared with 1,26,700 in 2009,
according to the 2011 Asia-Pacific Wealth Report by Merrill Lynch Global Wealth Management
and Capgemini. The cumulative wealth of Indian HNIs grew by 22% in 2009-10 to Rs 28,60,000
crore from a year ago.

Literature Review:
Performance evaluation of mutual funds is one of the preferred areas of research where a good
amount of study has been carried out. The area of research provides diverse views of the same.
For instance one paper 1evaluated the performance of Indian Mutual Fund Schemes in a bear
market using relative performance index, risk-return analysis, Treynors ratio, Sharpes ratio,
Jensens measure, Famas measure. The study finds that Medium Term Debt Funds were the best
performing funds during the bear period of September 98-April 2002 and 58 of 269 open ended
mutual funds provided better returns than the overall market returns.
Another paper2 used Return Based Style Analysis (RBSA) to evaluate equity mutual funds in
India using quadratic optimization of an asset class factor model proposed by William Sharpe
and analysis of the relative performance of the funds with respect to their style benchmarks.
Their study found that the mutual funds generated positive monthly returns on the average,
during the study period of January 2000 through June 2005. The ELSS funds lagged the Growth
funds or all funds taken together, with respect to returns generated. The mean returns of the

of Dr. Rao, Narayan Performance Evaluation of Indian Mutual Funds, www.ssrn.com, paper no.433100 and
PP.1-24 Indian Mutual Funds, www.ssrn.com, paper no.433100 and PP.1-24
2
Prof. Banerjee, Ashok et. Al (2007),Performance Evaluation of Indian Mutual Funds vis--vis their style
benchmarks, www.ssrn.com, paper no.962827 and PP.1-18

39

growth funds or all funds were not only positive but also significant. The ELSS funds also
demonstrated marginally higher volatility (standard deviation) than the Growth funds.
One study3 identified differences in characteristics of public-sector sponsored & private-sector
sponsored mutual funds find the extent of diversification in the portfolio of securities of publicsector sponsored and private-sector sponsored mutual funds and compare the performance of
public-sector sponsored and private-sector sponsored mutual funds using traditional investment
measures. They primarily use Jensens alpha, Sharpe information ratio, excess standard deviation
adjusted return (eSDAR) and find out that portfolio risk characteristics measured through
private-sector Indian sponsored mutual funds seems to have outperformed both Public- sector
sponsored and Private-sector foreign sponsored mutual funds and the general linear model of
analysis of covariance establishes differences in performance among the three classes of mutual
funds in terms of portfolio diversification.

Another study4 examined the risk-adjusted performance of open-end mutual funds which invest
mainly in German stocks using Jensons measure and Sharpes measure. The study finds out that
the rates of return of the mutual funds and the rates of return of the chosen benchmark both must
include identical return components. Either both must include dividends or exclude them. The
performance estimates are not very sensitive with respect to the benchmark choice. When we
look at an investment strategy in which the investment in a specific fund has the same risk as the
chosen benchmark, the average underperformance is small when we weight the individual fund
returns equally. The average performance is neutral, when we weight the individual fund returns
according to fund size, measured by assets under management.

One more paper5 analyzed whether it was more appropriate to apply a factor-based or a
characteristic-based model - both known as benchmarks in portfolio performance measurement
3

Prof. Banerjee, Ashok et. Al (2007),Performance Evaluation of Indian Mutual Funds vis--vis their style
benchmarks, www.ssrn.com, paper no.962827 and PP.1-18
Panwa paper no.876402 and PP. 1-19
4
Stehle,Richard and Grewe,Olaf (2001), Long-Run Performance of German Stock Mutual Funds,
www.ssrn.com, paper no.271452 and PP. 1-32
5
Carlos,Juan (2005), Portfolio Performance: Factors or Benchmarks?, www.ssrn.com, paper no.760204 and
PP. 1-26

40

using the Linear model, asset pricing model and Fama and French factors. The study showed that
if information on returns was used and a linear model was proposed that adjusted return to a set
of exogenous variables, then the right side of the equation reported the achieved performance
and the passive benchmark that replicated the style or risk of the assessed portfolio. While, a
factor model utilizes a replicate benchmark with short positions implicitly symmetrical to the
long positions. Performance of Russell indexes was analyzed by applying various factor models,
constructed from the indexes themselves, and other models that use the indexes directly as
benchmarks; the presence of biases was detected. Therefore, according to the empirical findings,
selection of exogenous variables that define the replicate benchmark would appear to be more
relevant than the type of model applied.
Another study6 aimed at analyzing performance of select open-ended equity mutual fund using
Sharpe Ratio, Hypothesis testing and return based on yield. The most important finding of the
study had been that only four Growth plans and one Dividend plan (5 out of the 42 plans studied)
could generate higher returns than that of the market which is contrary to the general opinion
prevailing in the Indian mutual fund market. Even the Sharpe ratios of Growth plans and the
corresponding Dividend plans stand testimony to the relatively better performance of Growth
plans. The statistical tests in terms of F-test and t-Test further corroborate the significant
performance differences between the Growth plans and Dividend plans.
Another study7 investigated mutual fund performance using a survivorship bias controlled
sample of 506 funds from the 5 most important mutual fund countries using Carhart (1997) 4factor asset-pricing model. The study revealed a preference of European funds for small and high
book-to-market stocks (value). Secondly, it showed that small cap mutual funds as an investment
style out-performed their benchmark, even after control for common factors in stock returns.
Finally 4 out of 5 countries delivered positive aggregate alphas, where only UK funds outperformed significantly.
One more study8 looked at some measures of composite performance that combine risk and
return levels into a single value using Treynors ratio, Sharpes ratio, Jensons measure. The
study analyzed the performance of 80 mutual funds and based on the analysis of these 80 funds,
6

Carlos,Juan (2005), Portfolio Performance: Factors or Benchmarks?, www.ssrn.com, paper no.760204 and
PP. 1-26
7
Otten,Rogr and Bams,Dennis, European Mutual Fund Performance, www.ssrn.com, paper no.213808 and PP.
1-42
8
Wolasmal,Hewad, Performance evaluation of mutual funds, published by Econ WPA, paper no. 0509023 and
PP. 1-20

41

it was found that none of the mutual funds were fully diversified. This implied there is still some
degree of unsystematic risk that one cannot get rid of through diversification. This also led to
another conclusion that none of those funds would land on Markowitzs efficient portfolio curve.
Another paper9 aimed to evaluate if mutual fund managers exhibit persistently superior stock
selection skills over a short-horizon of one year using risk-adjusted abnormal returns (RAR),
One-factor capital asset pricing model or CAPM three-factor, Fama-French model, Four-factor
Carhart model. Their study demonstrated that short-term persistence in equity mutual funds
performance does not necessarily imply superior stock selection skills. Common factors in stock
returns explained some of the abnormal returns in top ranking mutual fund schemes. Only the
winner portfolios sorted on four-factor alphas' provided an annual abnormal return of about 10%
on post-formation basis using daily data. The short-term persistence results were much better
when daily data was used rather than monthly observations, thus implying that data frequency
does affect inferences about fund performance.
A similar study examined the empirical properties of performance measures for mutual funds
using Simulation procedures combined with random and random-stratified samples of NYSE and
AMEX securities and other performance measurement tools employed are Sharpe measure,
Jensen alpha, Treynor measure, appraisal ratio, and Fama-French three-factor model alpha. The
study revealed that standard mutual fund performance was unreliable and could result in false
inferences. In particular, it was easy to detect abnormal performance and market-timing ability
when none exists. The results also showed that the range of measured performance was quite
large even when true performance was ordinary. This provided a benchmark to gauge mutual
fund performance. Comparisons of their numerical results with those reported in actual mutual
fund studies raised the possibility that reported results were due to misspecification, rather than
abnormal performance. Finally, the results indicated that procedures based on the Fama-French
3-factor model were somewhat better than CAPM based measures.
One more paper evaluated whether or not the selected mutual funds were able to outperform the
market on the average over the studied time period. In addition to that by examining the strength
of interrelationships of values of PCMs for successive time periods , the study also tried to infer
about the extent to which the future values of fund performance were related to its past by using
single index model. The study revealed that there were positive signals of information
9

Wolasmal,Hewad, Performance evaluation of mutual funds, published by Econ WPA, paper no. 0509023 and
PP. 1-20

42

asymmetry in the market with mutual fund managers having superior information about the
returns of stocks as a whole. PCM also indicated that on an average mutual funds provided
excess (above-average) return, but only when unit of time period was longer (1 qtr or 4 qtr).
Therefore, they concluded that for assessing the true performance of a particular mutual fund, a
longer time horizon is better.
Another study examined the effect of incorporating lagged information variables into the
evaluation of mutual fund managers performance in Indian context with the monthly data for 89
Indian mutual fund schemes using Treynor - Mazuy Model, Merton-Henriksson Model. The
study revealed the use of conditioning lagged information variables causing the alphas to shift
towards the right and reducing the number of negative timing coefficients, though it could not be
concluded that alphas of conditional model were better compared to its unconditional counterpart
as they were not found to be statistically significant. The noticeably different results of the
unconditional timing models vis--vis conditional timing models testified superiority of the
model
One more study talked about a 4-step model for selecting the right equity fund and illustrated the
same in the context of equity mutual funds in Saudi Arabia. The 4 step model was as follows:
1. Compare returns across funds within the same category.
2. Compare fund returns with the returns of benchmark index.
3. Compare against the funds own performance.
4. Risk-related parameters: as indicated by the Standard Deviation (SD) and risk-adjusted returns
as calculated by the Sharpe Ratio (SR).
The study revealed that most of the funds invested in Arab stocks had been in existence for less
than a year and the volatility of the GCC stock markets contributed to the relatively poor
performance of these funds and the turnaround of these funds could take place only with the
rallying of GCC and other Arab markets. Out of the six categories of equity mutual funds in
Saudi Arabia discussed above, Funds invested in Asian and European stocks were more
consistent in their performance and yielded relatively higher returns than other categories,
though funds invested in Saudi stocks yielded higher 3-year returns. Given the future outlook of
Asian economies, particularly China and India and the newly emerging economies such as Brazil

43

and Russia, funds invested in the stocks of these countries are likely to continue their current
performance in near future.
One more paper studied the performance and portfolio characteristics of 828 newly launched
U.S. equity mutual funds over the time period 1991-2005 using Carhart (1997) 4-factor assetpricing model. Their study revealed new U.S. equity mutual funds outperformed their peers by
0.12% per month over the first three years. However, there were distinct patterns in this superior
risk-adjusted performance estimated using Carharts (1997) 4-factor model. The number of fund
that started to outperform older funds shrunk substantially after one to three years. These results
suggested that the initially favorable performance was to some extent due to risk taking and not
necessarily superior manager skill. Scrutinizing the returns further confirmed that the returns of
fund started to exhibit higher standard deviations and higher unsystematic risk that could not be
explained by the risk exposure to the four factors of the Car hart model.
Another paper, analyzed the Indian Mutual Fund Industry pricing mechanism with empirical
studies on its valuation. It also analyzed data at both the fund-manager and fund-investor levels.
It stated that mispricing of the Mutual funds could be evaluated by comparing the return on
market and return on stock. During the pricing period, if the return on stock is negative, then it
indicates overpricing and if are positive indicates under pricing. Relative performance
measurement was used to measure the performance of the MF with SENSEX and it used
Standard Deviation, Correlation analysis, Co-efficient of Determination and Null Hypothesis.
This study revealed that standard deviations of the 3-month returns were significant with the
increase in the period. The Standard Deviation increase indicated higher deviations from the
actual means. The variance and coefficient of variation (COV) were also significant. Variance
increases in the later periods indicated higher variability in the returns. As the time horizon
increased COV decreased implying value are less consistent as compared to small duration of
investments.
One more study, provided extensive evidence on portfolio characteristics of mutual funds and
studied the relation between fund performance and the fund manager's investment strategy using
both the traditional unconditional alpha model, as in Jensen (1968), and the conditional alpha,
following Ferson and Schadt (1996). The study showed that a weak negative relation exists
between performance and past stock returns in the portfolio. Investing in value stocks could help
to improve overall performance. It also showed that mutual funds with a more diversified

44

portfolio performed somewhat better than funds with a less diversified portfolio. However,
diversification could be achieved by extending the funds' investment universe and investing in
non-listed stocks. Elton, Gruber, Das and Hlavka (1993) showed that funds investing in these
types of assets could achieve superior performance simply because these assets were not
captured within the benchmark model. This paper, however, found no evidence to indicate that
investment outside the fund's primary investment universe would enhance performance.
Moreover, the effects of cash holdings on performance were explored, and some weak evidence
suggested that large cash holdings implied better tactical decisions.
Another paper

examined the performance of equity and bond mutual funds that invested

primarily in the emerging markets using Treynors ratio, Sharpes ratio, Jensens measure. With
this research they found that on an average the U.S. stock market outperformed emerging equity
markets but the emerging market bonds outperformed U.S. bonds. They also found that overall
emerging market stock funds under-performed the respective MSCI indexes. These were evident
by their lower return, higher risk, and thus lower Sharpe ratios.
One more paper studied the performance of mutual funds around the world using a sample of
10,568 open-end actively managed equity funds from 19 countries using different models,
mainly, domestic market model, international market model, Carhart (1997) domestic fourfactor model, Carhart (1997) international four-factor model. With the help of this research they
came to a conclusion that the funds size was positively related with fund performance. Larger
funds performed better suggesting the presence of significant economies of scale in the mutual
fund industry worldwide. This conclusion is consistent among domestic and foreign funds, and
in several other robustness tests. Fund age is negatively related with fund performance indicating
that younger funds tend to perform better. This finding seemed mainly driven by the samples of
foreign and U.S. funds. When investing abroad, young mutual funds seemed to offer investors
higher returns.

45

RESEARCH METHODOLOGY
This Report is based on primary as well as secondary data, however primary data collection was
given more important 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 or 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 decisions and
critical ones.
a) Research Design: Descriptive Design
b) Data Collection Method: Survey Method
c) Universe: Chandigarh
d) Sampling Method: The sample was collected through personal visits, formally and informal
talks and through filling up the Questionnaire prepared. The data has been analyzed by using
mathematical or statistical tools.
e) Sample Size: 100 respondents
f) Sampling Unit: Businessmen, Government Servant, Retired Individuals majorly HNIs
g) Data Source: Primary data
h) Data Collection Instrument: Structured Questionnaire
i) Sample Design: Data has been presented with the help of Bar Graph, Pie Chart, and Line
Graph etc.
j) Duration of The Study: The study was carried out for a period of 45 days, from 13th June to
30th July 2014.

46

Questionnaire to analyse perceptions of peoples for Mutual funds

Please go through the following questionnaire and identify the appropriate responses for each of
them. There is no such thing as a correct answer, so feel free to respond. Please forward it as
many peoples as you can. Disclaimer: Your response via this questionnaire will be used strictly
for academic purposes. There will not be any commercial solicitation or usage of the response in
any kind / form whatsoever.
1.What's your Good name?
2. Whats your Age?
3. What is your Qualification?
(a) Under-graduation

(b) Graduation

(c) Post Graduation

(d) Others

4. What is your Occupation?

(a) Government

(b) Private

(c) Business

(d) Others

5.What is your monthly family income?

(a) <=30000

(b) 30000-50000

(c) 50001-100000

(d) >100000

6. In this highly volatile market, do you think Mutual Funds are a destination for
Investments?
YES
NO
7. Which Mutual Fund Plan do you consider the best?

47

Balanced Plan
Equity Plan
Income Plan
Other Plan
8. How long would you like to hold your Mutual Funds' Investments?
1 to 3 years
4 to 6 years
7 to 10 years
10 years or more
9. How do you rate the risks associated with Mutual Funds?
Low
Moderate
High
10. Which among the following principles do you consider while selecting a Mutual Fund?
Enquiring about fund Managers
Finding about its Past Performance
Identifying your own objective

48

Other
11. Which end-scheme do you feel is good? *Open end type of mutual fund are those that
does not have restrictions on the amount of shares the fund will issue and Closed end
fund is a publicly traded investment company that raises a fixed amount of capital
through an initial public offering (IPO).
Open End
Close End
12. What is your annual income ?
Below Rs. 100000
100000 to 300000
300000 to 500000
Above 500000
13. What do you think which risks usually affects Mutual Funds? Systematic risk is the
risks inherent to the entire market segment as interest rates and unsystematic risks are
specific risks as NEWS that affects specific stock.
Systematic
Unsystematic

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14. Which are the primary sources of your knowledge about Mutual Funds as an
investment option?

Television
Internet
Newspaper/Journals
Friends/Relatives
Sales
Representatives
15. While investing your money, how these factors affect your decision ? Corresponding to
your choices how would you rate their influence on your final Mutual Fund purchase
decision. Please rank them on a scale of 1-5 with 1 representing minimal influence and 5
representing Strong influence
1

Liquidity
High Return
Professional
Management
Diversification
Brand Image
Price
Risk

16. Which among the following is the safest Investment option?

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Mutual Fund
Stock Market
Bank Deposit
Others
17. Which factors prevent you to invest in mutual fund?

Bitter Past Experience

Lack of Knowledge
Lack of Confidence in Service being provided
Difficulty in Selection of Schemes
Inefficient investment advisors
Other
18. Reason you make investment in mutual fund
Higher return
Tax benefit
Professional management
other

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Anything you would like to add about mutual fund.

You are welcome

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Data Analysis & Interpretation

1. Analyzing to according to Age

Interpretation - Here, it is been found that most of the investors i.e,35% of the investors
who invest in Mutual Fund lies in between the age group of 36-40, they are more reluctant as
well as experienced in this field of Mutual Fund.
Then the Second highest age group lies in between the age group of 41-45 (22%), they are also
aware of the benefits in investing in mutual fund.
The least interested group is the Youth Generations.

2. Analyzing according to Qualifiaction

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Interpretation - Out of my survey of 100 people, 71% of the investors are Graduates and Post
Graduates and 16.67% are Under Graduates and Others, around 12.5%, which may include
persons who have passed their 10th standard or 12th standard invests in Mutual Funds.

3. Analyzing according to Occupation

Interpretation - Here it is amazed to see that around 46% of the investment is been invested by
the persons working in Private sectors, according to them investing in Mutual Funds is more
safer as well as more gainer.
Then we find that the businessmen of around 25%gives more preference in investing in mutual
funds, they think that investing in mutual fund is better than investing in shares as well as Post
office.
Next we see that the persons working in Government sectors of around 24% only invests in
Mutual Fund.

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1. Analyzing according to Monthly Family Income

Interpretation - Here , we find that HNI investors of around 35% with the monthly income of
Rs. 50001-100000 are the most likely to invest in Mutual fund , than followed by investors of
around 25% with monthly income of Rs 30001-50000 any other income group. And then 20%
-20 % by investors having monthly income of <30000and <100000
Analyzing investment in mutual fund on the basis of volatility in market

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Interpretation- from the above pie chart it is clear that 70% of investors consider investment in
mutual fund as a destination in this highly volatile market where as 30% of investors consider
investment in mutual fund as a destination
Analysis on the basis of mutual fund plans investors consider

Interpretation- from the data collected through questionnaires I come to find that near
about 40% of investors invest in balanced funds ie.. in both equity and in debt fund keeping their
portfolio balanced .30% of the investors that were covered in the research finds equity plans
more beter than others and belive in taking more and more risk. 10% invest in income plans
which are also known as debt schemes. These schemes generally invest in fixed income

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securities such as bonds and corporate debentures. Capital appreciation in such schemes may be
limited. and rest 20% invest in other plans such as tax saving plans, index plans etc

Analysis according to length of time to hold investment in mutual fund

Interpretation- the above pie chart shows that most of the investors (40%) believe in investing
their in money in mutual funds for a period of 4-6 years, followed by 35% investors who do it
for 7-10 years ,20% investors invest in mutual funds for 1-3 years and only 5% do the same for
10 years

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Analysis on the basis of risk associated with the mutual fund

Interpretation- near about 65% of the investors stated that they consider mutual funds as a
moderate risk as these are linked to the equity market moreover this risk is minimized by the
professional expertise of fund manager and diversification.20 % of the investors consider it as a
less risky and near about 15 % consider it as more risky due to its ultimate investment in equity
market
Analysis according to the principles investors consider while selecting a Mutual Funds

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Interpreation- from the above pie chart it is clear that 47 % of investors finds about the past
performance of the mutual funds before investing in to it. While 20 % of investors enquire about
the fund manager , 15% investors invest in mutual fund in accordance with their own objectives
which differ from person to person and near about 18% of investors consider other principals
than the above mentioned three principles

Analysis on the basis of end scheme thae the investor feel good

Interepration- the above graph simply depicts that 70% of the investor consider open ended
mutual funds good as they can enter and exit at any time from these fundsand benefit of sip
where they can purchase more shares when the price of share is low.where as 30% of investors
consider closed ended funds better than open ended funds as they belive that its timein the that
akes difference not timing the market
Analysis acording to the risk (systematic and unsystematic)that affect themutual fund more

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Interpreation- near about 80% of investors feel that systematic risk ussauly affects the mutual
funds as these can not be diversified and for this reasion people condider it as a un-diversifiable
risk and so.me time market risk. Where as 20%of people also consider unsystematic risk who
deals in market for short time
Analysis on the basis of source of knowladge about mutual funds

Interpretation- among the 5 sources mentioned in the questioner most people(45%) get
knowladge about mutual fund through the sale representative , 20% through internet,near about
16% through newspaper and journals ,near about 14 percent through friends and relatives by
word of mouth and only 10 percent through television

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(this may b because the research was conducted in chandigarh and for the HNIs )

Analysis on the basis of the factors that affect investors decision While investing your
money

Interpretation:30% of the people look for high returns while making the investment and rank it
as a number 1st in overall research where as 20% of people look for risk assosiated with the
mutual funds and it was ranked as 2nd factor in overall research.17 % of investor look for the
liquidity of the mutual funds and this factor was ranked 3rd in overall research .price of mutual
fund is also considered vital by 13% of people and was ranked 4th in over all research,8%,8% of
people considered professional management and diversification and ranked them as 5th and 6th

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factor in overall research.and only 5% of people have cosidered brand image as important and it
is ranked 7th in over all research

Analysis on the basis of safest investment option

Interpreation- the safest investment option that65% people consider is bank deposit and
thenfollowed by mutual fund where 25%people has mentioned it as safest and no one consider
stock market as safest.and 10 % of people feel that investment in gold, property etc is the most
safest

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Analysis according to the factor that prevent investors to invest in mutual fund

Interpretation- from the above pie chart it is clear that 23%,23% of people avoid investing in
mutual funds beacause of bitter past experience and lack of confidence in service being provided,
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22% of people dont have the proper knowladge about the mutual funds and therefore dont
invest in it. Where as 20% of the respondent feels that the tinvestment advisors are in sufficient ,
10% finds difficulty in selection of schemes and 2% have other reasion that prevents them form
making investment

Analysis on the basis of pourpose of investment in mutual funds

Interpreation- the 45% of HNI investors invest in the mutual funds for the pourpose of tax
benefit, 30% of the investor do invetment to get high returns,15% for getting professional
management and rest 5% for the other reason

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FINDINGS

HNIs who lie under the age group of 36-40 have more experience and are more

interested in investing in Mutual Funds.

Out of the total 100 investors near about 71% of investors are graduate or post graduate

and rest are under graduates

Most of the respondent who are investing are of working in private organisations then

followed by businessman and government employes

Most of the HNIs who are investing belongs to Rs 30001-50000 and 50001-100000
Near about 70% of HNIs said that investment in mutual fund is best in this highly

volatile market
Most of the HNIS invest in balanced funds thus making their portfolio lesser risky then

followed by the investors investing in equity mutual funds and then by debt funds
The HNIs respondnts of this research said that they keep their mutual funds investments

foe 4-6 years and 7-10years as long term investment

When theequestion relating to the risk assosiated with the mutual fund was asked most of

the respondent said that it is of moderate risk

Most of theHNIs invest in the mutual funds only after evaluating the past performance of

mutual funds
When a question for open and closed ended mutual funds was asked near about 70% of
individual said that they invest in open ended schemes

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Its the systematic risk which the investor consider that affect thie investment and returns

in mutual funds
The amazing finding of the research was that most the HNIs investor come to know

about various mutual fund scheames through the sale representative and through internet
Most of the HnI respondend look for the high rteturn in the mutual funds while making

the investment
Respondent consider bank deposit the safest investment followed by the investment in

mutual funds
When the respondend was asked about the factors that prevent them from investing in
mutual funds they said that the bitter past experience and lack of confidence in service

being provided are the factor for that

The HNIs also said that they also invest in tax saving schems for savin their tax
SUGGESTIONS

The major obstacles that was faced during the project was public unawareness regarding
mutual fund and its various schemes.so first and formost it is important to undertake steps

to craete awareness about mutual funds

The investors have less tust on the professional managers of mutual funds so steps should

be taken in this regard also

The HNIs are interested in tax saving scheames so more such scheames should be

offered
The compinies should make a proper research before investing the investors money in

different equities so that a higer return can be offered

The expectation of people from mutual funds is high . so the portfolio of the fund should

be prepaired taking into consideration the expectation of the people

The company should also improve its service so that more and more people are attracted
and some special services should be provided to HNIs

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CONCLUSION
Mutual Funds now represent perhaps most appropriate investment opportunity for most
investors. As financial markets become more sophisticated and complex, investors need a
financial intermediary who provides the required knowledge and professional expertise on
successful investing. As the investor always try to maximize the returns and minimize the risk.
Mutual fund satisfies these requirements by providing attractive returns with affordable risks.
The fund industry has already overtaken the banking industry, more funds being under mutual
fund management than deposited with banks. With the emergence of tough competition in this
sector mutual funds are launching a variety of schemes which caters to the requirement of the
particular class of investors. Risk takers for getting capital appreciation should invest in growth,
equity schemes. Investors who are in need of regular income should invest in income plans.
The stock market has been rising for over three years now. This in turn has not only
protected the money invested in funds but has also to helped grow these investments.
This has also instilled greater confidence among fund investors who are investing more
into the market through the MF route than ever before.
Reliance India mutual funds provide major benefits to a common man who wants to
make his life better than previous.

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The mutual fund industry as a whole gets less than 2 per cent of household savings
against the 46 per cent that go into bank deposits. Some fund managers say this only
indicates the sector's potential. "If mutual funds succeed in chipping away at bank
deposits, even a triple digit growth is possible over the next few years.

BIBLIOGRAPHY

AMFI test workbook

www.moneycontrol.com
www.valueresearchonline.com
www.mutualfundindia.com
www.bseindia.com
www.icicidirect.com
www.rediff.com

www.rsec.co.in
www.reliance capital.com
leap program book

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