CHAPTER-1

INTRODUCTION TO
ORGANISATION
1.1 INTRODUCTION TO RELIANCE MUTUAL FUNDS
Reliance Mutual Fund is Indias largest bank sponsored mutual fund and has an enviable
track record in judicious investments and consistent wealth creation.
The fund traces its lineage to Reliance - Indias largest banking enterprise. The institution
has grown immensely since its inception and today it is India's largest bank, patronized
by over 80% of the top corporate houses of the country.
Reliance Mutual Fund is a joint venture between the State Bank of India and Socit
General Asset Management, one of the worlds leading fund management
In twenty years of operation, the fund has launched 38 schemes and successfully
redeemed fifteen of them. In the process it has rewarded its investors handsomely with
consistent returns.
A total of over 5.8 million investors have reposed their faith in the wealth generation
expertise of the Mutual Fund.
Today, the fund manages over Rs. 38,782 cores of assets and has a diverse profile of
investors actively parking their investments across 38 active schemes.
The fund serves this vast family of investors by reaching out to them through network of
over
130 points of acceptance, 28 investor service centers, 46 investor service desks and 56
district organizers.
Reliance Mutual is the first bank-sponsored fund to launch an offshore fund Resurgent
India Opportunities Fund.
Growth through innovation and stable investment policies is the Reliance MF credo.

1.1.1 Strong Heritage

Reliance Mutual Fund draws strength from India's premier and highly respected bank, the
State Bank of India. Set up on July 1, 1955, the State Bank of India is today, the largest
banking operation in the country.
Through years of commitment to service and national development, Reliance has grown
into an instrument of social change. Today, it has 9034 branches in India and 51 offices in
31 countries, spread across the globe.
Investment Equity:

2
 Our Investment philosophy revolves around the concept of growth at a reasonable
price whereby we invest in growth oriented stocks which are available at attractive
relative valuations.
We use a combination of the Top down and Bottom up approaches to investment. Top
down approach for sector allocation. Bottom up approach for stock selection.
Risk control is an important element of our strategy
We believe in pro-active fund management to out-perform benchmark indices
Debt:
To maximize the "risk adjusted returns" for the investors, based on their risk tolerance.
Manage the schemes on a "Portfolio basis".
Active management of interest rate risk.
Credit risk management by following the conservative approach.
Continuous monitoring
RelianceMF has one of the widest of range schemes to meet every requirement of
investors. With investment expertise of over 15 years, RelianceMF has always fulfilled its
promise to its investors and has striven to manage their funds with honestly and
integration.

1.1.2 Leading Products of Reliance Mutual Funds

Most popular products:
1. Reliance Magnum Mutual Fund
Reliance Magnum Mutual Fund schemes are designed with the primary objective to
provide the investors with an opportunity to earn through regular dividends and capital
gains. Magnum Mutual Funds from Reliance are offered through Reliance Mutual Fund,
one among the largest mutual funds in India that has a huge investor base of more than
5.8 million. Reliance MF is a joint venture between India's largest bank, State Bank of
India and SocieteGenerale Asset Management, France. The company has a long
experience of more than 20 years in fund management and it utilizes its expertise in
delivering values to investors.
2. Reliance Magnum Mutual Funds
State Bank of India offers a variety of mutual funds under the Magnum Fund schemes
and they guarantee higher returns through investment in money market securities and
debts. The following are some of the most popular Reliance Magnum Mutual Funds that

3
an eligible customer can avail.
1. Magnum COMMA Fund
2. Magnum Equity Fund
3. Magnum Global Fund
4. Magnum Index Fund
5. Magnum Madcap Fund
6. Magnum Multicap Fund
7. Magnum NRI Investment Fund - Flexi Asset Plan
8. Reliance Magnum Tax gain Scheme 1993
3. Reliance Magnum Equity Fund
Reliance Magnum Equity Fund is one of the best investment schemes that offer the
investors with long term capital gain by investing with high growth companies. It is a
diversified equity fund that focuses on providing aggressive growth. Magnum equity fund
is the ideal choice for those investors who want to earn benefit from the growth in the
equity markets and who are comfortable with fluctuating attendant volatility. This State
Bank of India mutual fund plan was introduced on 2nd January 1919 and the minimum
application fee for this scheme is Rs. 1000.
4. Reliance Magnum Mutual Fund NAV
Magnum mutual fund value and NAV are neither constant nor same for all the schemes.
They keep on changing from time to time and they depend on the type of the mutual fund
scheme.
Other Products offered:
Equity Schemes
Reliance Arbitrage Opportunities Fund
Reliance Blue Chip Fund
Reliance Infrastructure Fund Series I
Reliance One India Fund
Reliance Tax Advantage Fund Series I
Reliance Dynamic Bond Fund
Reliance Premier Liquid Fund
Reliance Short Horizon Debt Fund
Reliance Short Horizon Debt Fund Ultra Short Term Fund
Reliance Short Horizon Debt Fund Short Term Fund
Balanced Scheme:
Magnum Balanced Fund
Exchange Traded Scheme:
Reliance Gold Exchange Traded Scheme

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New product:
Reliance PSU Fund
Reliance PSU Fund, an open ended equity fund, would invest in the stocks of Public
Sector Undertakings, whose strong presence in high growth trajectory sectors viz;
financial services, Oil & Gas, engineering and capital goods space offers you an
opportunity to participate in these sectors and benefit over long term.

1.1.3 Investment Strategy of Reliance PSU

The primary strategy of the scheme would be to invest in the stocks of the PSU
companies. The scheme would endeavor to identify market opportunities and at the same
time would sufficiently diversify its equity portfolio and control liquidity risks and non-
systematic risks by selecting well researched stocks which have growth prospects on a
long and mid-term basis in order to provide stability and possibility of returns in the
scheme.
Investment in equities would be done through primary as well as secondary market,
private placement / QIP, preferential/firm allotments or any other mode as may be
prescribed/ available from time to time.

Why should I invest in Reliance PSU Fund?

PSUs are the wealth creators of the nation, with strong fundamentals and they are
available at attractive valuations compared to broader markets. There may arise
disinvestment opportunities.
(Source: ICRA MFI explorer. Data as on 30th April 2010. Past performance may or may
not be sustained in future).
PSUs A Great Investment Opportunity Now
Public sector enterprises play an important role in a developing economy and they make a
major contribution towards the economic growth by creating a diversified industrial base.
PSUs have played a significant role in building the countrys infrastructure, enhancing
national economic development, generating surpluses for capital formation and
contributing to government revenue
As the table suggests, currently PSU companies are attractively placed in terms of

5
valuations vis--vis the broader market indices and the BSE Sensex. BSE PSU Index is
trading at relatively attractive trailing P/E multiple of 14.26 as against 17.16 P/E of
Sensex companies, with better earning growth rate than the Sensex. Valuations as
measured by P/B multiple also suggest that PSUs are better placed than the Sensex
companies.
Divestment Opportunity - Unlocking Value
The stage is being set for all listed companies to mandatory have minimum public
holding of at least 25%. Thus PSUs having stake above 75% will have to dilute their
holding to that extent. Disinvestment is high on the governments agenda to increase the
threshold limit for non-promoter public shareholding for the private sector as well as
public sector companies. PSU companies, other than the listed ones lined up for
disinvestment could include Coal India, LIC India, BSNL, Nuclear Power Corporation
etc. Reliance PSU Fund would also identify investment opportunities in IPOs of these
companies. Privatisation has brought out significant value unlocking and greater
efficiencies in the past, which lead to re-rating of those companies and eventually leading
to wealth creation.
(Source: Bloomberg Past performance may or may not be sustainable in future.
Strong Dividend Payouts
While the growth potential clearly exists, there is another aspect that adds to the need to
look at PSU companies closely; that is they have a strong dividend payout history.
(Source:Prowess. Past performance may or may not be sustained in future)

6
Low Debt to Equity Ratio
PSU Companies have very less borrowing as compared to their private peers. They are
also having better cash reserves, which makes their debt equity ratio lower and more
attractive for investors.
PSUs A Great Investment Opportunity Now
Public sector enterprises play an important role in a developing economy and they make a
major contribution towards the economic growth by creating a diversified industrial base.
PSUs have played a significant role in building the countrys infrastructure, enhancing
national economic development, generating surpluses for capital formation and
contributing to government revenue.
Strong Footing Across Key Sector
PSUs are spread across a wide spectrum of sectors and therefore beneficial for an
investor who is interested in building a well diversified portfolio. Most of the PSU
companies are present in sectors, which are core to the India Growth Story.
Market Dominance
Top 18 PSUs total income is equal to 15% of Indias GDP
20 companies of the BSE 100 with a combined market cap weightage of 33% are
from the PSU space
Net Profit of central PSUs has grown at a CAGR of 19.37% in the last 10 years
One out of five companies in the Nifty50 are PSUs
(Source: Dept. of Public Enterprise, Market Data)
Big Players
NTPC accounts for 30% of power generation
ONGC and OIL manage 90% of oil production
PSU banks account for about 73% of entire banking system assets. (Source: RBI)
BHEL is market leader in Power Equipments.
(Source: Data and analysis from reports and websites of cos)
Strong Fundamentals
Performance of PSUs has been exceptionally good as compared to the broader indices.
For instance, the following graph shows the performance of Reliance vis--vis Sensex
and the margin with which it has outperformed the BSE Sensex.

7
 CHAPTER-2
INTRODUCTION TO
PROJECT

8
2.1 INTRODUCTION TO 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 appreciations 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.

Figure 2.1 Working of Mutual Fund

Source: http://finance.indiamart.com/india_business_information/gifs/conceptmf.gif

A Mutual Fund is a body corporate registered with the Securities and Exchange Board of
India (SEBI) that pools up the money from individual/corporate investors and invests the
same on behalf of the investors/unit holders, in Equity shares, Government securities,
Bonds, Call Money Markets etc, and distributes the profits. In the other words, a Mutual
Fund allows investors to indirectly take a position in a basket of assets.

9
 Figure 2.2 Concept of Mutual Fund

Source: http://www.wealthbuilders.in/image/concept-of-mutual-funds.gif

Mutual Fund is a mechanism for pooling the resources by issuing units to the investors
and investing funds in securities in accordance with objectives as disclosed in offer
document. Investments in securities are spread among a wide cross-section of industries
and sectors thus the risk is reduced. Diversification reduces the risk because all stocks
may not move in the same direction in the same proportion at same time. Investors of
mutual funds are known as unit holders. The investors in proportion to their investments
share the profits or losses. The mutual funds normally come out with a number of
schemes with different investment objectives which are launched from time to time. A
Mutual Fund is required to be registered with Securities Exchange Board of India (SEBI)
which regulates securities markets before it can collect funds from the public.
[http://www.appuonline.com/mf/knowledge/concept.html/ last accessed on Dec. 26, 2009]

Net Assest Value

A Mutual Fund is a fund which is operated by an investment company which collects
money from various shareholders connected with the mutual fund and invests them in a

10
group of assets. The money generated from the selling of shares is used in buying various
investment instruments like stocks, bonds, and money market vehicles. The shareholders
receive an equity position in the fund depending on the units they hold and succumbing to
the underlying securities of the fund.

Some mutual funds in India have securities which are not sold on formal exchange on a
regular basis. These securities widely include shares in small scale or insolvent companies,
derivatives, and private investments in any unregistered stocks or non-public company. The
fund manager forms an estimation of the value of these securities while calculating their
net asset value and accordingly determines the amount of fund's assets to be invested in
such securities as these securities usually lack a public market. The Net Asset Value - NAV
mainly determines the value of each holdings of the mutual fund. It is expressed as per-
share amount. In a majority of the mutual fund holdings, the Net Asset Value is calculated
on a daily basis after the trading closes in some specified financial exchange. However in
some of the mutual funds, the net asset value is calculated many times in a day during the
trading period.

Net Asset Value=

Market value of fund invested + accrued income Fund liability
No. of units

[http://business.mapsofindia.com/mutual-funds/net-asset-value-nav.html/ last accessed on

Nov 15, 2009]

Organisation of a Mutual Fund

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

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 Figure 2.3 Organization Set Up of Mutual Fund

Source: http://www.tatamutualfund.com/images/mutual-fundas/i_mid2.gif
1) Sponsors:
It refers to anybody corporate which initiates the launching of a mutual fund it is this
agency which of its own if eligible or in collaboration with other body corporate complies
the formalities of establishing a mutual fund.
The sponsor should have a sound track record and experience in the relevant field
of financial services for a minimum period of 5 tears.
SEBI ensures that sponsors should have professional competence, financial
soundness and general reputation.
Every mutual fund shall be registered under the said regulations and it is the
sponsor who files an application.

2) Trustees:
A trustee is a person who holds the property of mutual fund in trust for the benefits of the
unit holders. Once the mutual fund trust is formed, the role of sponsor virtually becomes
nil. The trustees are to perform the following duties:
To manage the mutual fund in accordance with the laws, regulations, directions and
guidelines issued by SEBI, Stock Exchanges and other governmental and regulatory
agencies.
To collect income due to be paid in respect of the schemes of mutual fund.

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3) Assets Management Company: (AMC)
Assets Management Company is a body engaged to run the show of mutual fund. It is body
corporate whos Memorandum and Articles of Associations are to be approved by the
SEBI. The sponsor or the trustees appoint AMC to manage the affairs of the mutual fund.
The AMC performs the following functions:
To take reasonable steps and exercise due diligence to ensure that investments of
scheme are as per the provisions of the regulations.
To submit regular returns to the trustees regularly.
To appoint the custodian.
To appoint registrar and share transfer agents.

4) Custodians:
In a mutual fund depending upon its size there is a substantial work involved for managing
the scrip bought from the market. SEBI requires that each mutual fund shall have a
custodian who is responsible for such a work. To sum up the assignments of custodian are:
Ensuring delivery of scrips only on receipt of payment and payment only upon
receipt of scrip.
Regular reconciliation of assets to accounting records.
Timely resolution on discrepancies and failures.

5) Transfer Agent
The transfer agent handles sales and redemptions of fund shares, maintains shareholder
records, computes the NAV daily, and handles dividend and capital gains distributions. The
transfer agent is usually a bank or trust company.
[http://www.nrimutualfunds.com/what_is_mf_frame.htm#Organization%20of%20Mutual
%20Fund/ last accessed on Jan. 13, 2010]

2.1.1 History of Mutual Fund Industry

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India,
at the initiative of the Government of India and Reserve Bank. Though the growth was
slow, but it accelerated from the year 1987 when non-UTI players entered the Industry.

13
In the past decade, Indian mutual fund industry had seen a dramatic improvement, both
qualities wise as well as quantity wise. Before, the monopoly of the market had seen an
ending phase; the Assets Under Management (AUM) was Rs. 67 billion. The private sector
entry to the fund family raised the AUM to Rs. 470 billion in March 1993 and till April
2004; it reached the height if Rs. 1540 billion. The Mutual Fund Industry is obviously
growing at a tremendous space with 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
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament by the Reserve
Bank of India and functioned under the Regulatory and administrative control of the
Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial
Development Bank of India (IDBI) took over the regulatory and administrative control in
place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of
1988 UTI had Rs.6, 700 crores of assets under management.
Second Phase 1987-1993 (Entry of Public Sector Funds)
1987 marked the entry of non- UTI, public sector mutual funds set up by public sector
banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of
India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June
1987 followed by 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 established its mutual fund in June 1989 while GIC had set up
its mutual fund in December 1990.At the end of 1993, the mutual fund industry had assets
under management of Rs.47, 004 crores.
Third Phase 1993-2003 (Entry of Private Sector Funds)
1993 was the year in which the first Mutual Fund Regulations came into being, under
which all mutual funds, except UTI were to be registered and governed. The erstwhile
Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual
fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted
by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now
functions under the SEBI (Mutual Fund) Regulations 1996. As at the end of January 2003,

14
there were 33 mutual funds with total assets of Rs. 1, 21,805 crores.
Fourth Phase since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of
India with assets under management of Rs.29,835 crores as at the end of January 2003,
representing broadly, the assets of US 64 scheme, assured return and certain other schemes.
The 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. consolidation and
growth. As at the end of September, 2004, there were 29 funds, which manage assets of
Rs.153108 crores under 421 schemes.

2.1.2 Types of Mutual Fund

Mutual fund schemes may be classified on the basis of its structure and its investment
objective.
By Structure:
(a) 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.
(b) 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.
(c) 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.

15
 By Nature
Under this the mutual fund is categorized on the basis of Investment Objective. By nature
the mutual fund is categorized as follow:
Figure 2.4 Types of Mutual Funds

Source: http://www.appuonline.com/gifs/mutual-fund-types.gif
(a) 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.
(b) 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:

16
 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.
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.
(c) 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.
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.
By Investment Objective
(a) 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

17
normally invest a major part of their fund in equities and are willing to bear short-term
decline in value for possible future appreciation.
(b) 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.
(c) 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).
(d) 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.
[http://finance.indiamart.com/india_business_information/types_of_schemes_mutual_fun
ds.html/ last accessed on Jan. 13, 2010]

2.1.3 How to Invest in Mutual Fund

Step one- identify your needs

Your financial goals will vary, based on your age, lifestyle, financial independence, family
commitments, and level of income and expenses among many other factors. Therefore, the
first step is to assess your needs. You can begin by defining your investment objectives and
needs which could be regular income, buying a home or finance a wedding or educate your
children or a combination of all these needs, the quantum of risk you are willing to take
and your cash flow requirements.

Step Two - Choose the right Mutual Fund

The important one identify your need is to choose the right mutual fund scheme which
suits your requirements. The offer document of the scheme tells you its objectives and
provides supplementary details like the track record of other schemes managed by the same
Fund Manager. Some factors to evaluate before choosing a particular Mutual Fund are the

18
track record of the performance of the fund over the last few years in relation to the
appropriate yardstick and similar funds in the same category. Other factors could be the
portfolio allocation, the dividend yield and the degree of transparency as reflected in the
frequency and quality of their communications.

Step Three - Select the ideal mix of Schemes

Investing in just one Mutual Fund scheme may not meet all your investment needs. You
may consider investing in a combination of schemes to achieve your specific goals.

Step Four - Invest regularly

The best approach is to invest a fixed amount at specific intervals, say every month. By
investing a fixed sum each month, you buy fewer units when the price is higher and more
units when the price is low, thus bringing down your average cost per unit. This is called
rupee cost averaging and is a disciplined investment strategy followed by investors all over
the world. You can also avail the systematic investment plan facility offered by many open
end funds.

Step Five- Start early

It is desirable to start investing early and stick to a regular investment plan. If you start
now, you will make more than if you wait and invest later. The power of compounding lets
you earn income on income and your money multiplies at a compounded rate of return.

Step Six - The final step

Need to do now is to go for online application forms of various mutual fund schemes and
start investing. One may reap the rewards in the years to come. Mutual Funds are suitable
for every kind of investor - whether starting a career or retiring, conservative or risk taking,
growth oriented or income seeking.

2.14 Mutual Fund Investing Strategies

1) Systematic Investment Plans (SIPs)
These are best suited for young people who have started their careers and need to build
their wealth. SIPs entail an investor to invest a fixed sum of money at regular intervals in

19
the Mutual fund scheme the investor has chosen, an investor opting for SIP in xyz Mutual
Fund scheme will need to invest a certain sum on money every month/quarter/half-year
in the scheme.
2) Systematic Withdrawal Plans (SWPs)
These plans are best suited for people nearing retirement. In these plans, an investor
invests in a mutual fund scheme and is allowed to withdraw a fixed sum of money at
regular intervals to take care of his expenses.
3) Systematic Transfer Plans (STPs)
They allow the investor to transfer on a periodic basis a specified amount from one
scheme to another within the same fund family meaning two schemes belonging to the
same mutual fund. A transfer will be treated as redemption of units from the scheme from
which the transfer is made. Such redemption or investment will be at the applicable NAV.
This service allows the investor to manage his investments actively to achieve his
objectives. Many funds do not even charge any transaction fees for his service an added
advantage for the active investor.

2.1.5 Mutual Fund Advantages

The benefits on offer are many with good post-tax returns and reasonable safety being the
hallmark that we normally associate with them. Some of the other major benefits of
investing in them are:
(a) Number of Available Options
Mutual funds invest according to the underlying investment objective as specified at the
time of launching a scheme. So, we have equity funds, debt funds, gilt funds and many
others that cater to the different needs of the investor. The availability of these options
makes them a good option. While equity funds can be as risky as the stock markets
themselves, debt funds offer the kind of security that aimed at the time of making
investments. Money market funds offer the liquidity that desired by big investors who wish
to park surplus funds for very short-term periods. The only pertinent factor here is that the
fund has to selected keeping the risk profile of the investor in mind because the products
listed above have different risks associated with them. So, while equity funds are a good
bet for a long term, they may not find favor with corporate or High Net worth Individuals

20
(HNIs) who have short-term needs.
(b) Diversification
Investments spread across a wide cross-section of industries and sectors and so the risk is
reduced. Diversification reduces the risk because not all stocks move in the same direction
at the same time. One can achieve this diversification through a Mutual Fund with far less
money than one can on his own.
(c) Professional Management
Mutual Funds employ the services of skilled professionals who have years of experience to
back them up. They use intensive research techniques to analyze each investment option
for the potential of returns along with their risk levels to come up with the figures for
performance that determine the suitability of any potential investment.
(d) Potential of Returns
Returns in the mutual funds are generally better than any other option in any other avenue
over a reasonable period. People can pick their investment horizon and stay put in the
chosen fund for the duration. Equity funds can outperform most other investments over
long periods by placing long-term calls on fundamentally good stocks. The debt funds too
will outperform other options such as banks. Though they are affected by the interest rate
risk in general, the returns generated are more as they pick securities with different
duration that have different yields and so are able to increase the overall returns from the
investment.
(e) Efficiency
By pooling investors' money together, mutual fund companies can take advantage of
economies of scale. With large sums of money to invest, they often trade commission-free
and have personal contacts at the brokerage firms.
(f) Ease of Use
Can one imagine keeping track of a portfolio consisting of hundreds of stocks? The
bookkeeping duties involved with stocks are much more complicated than owning a
mutual fund. If you are doing your own taxes, or are short on time, this can be a big deal.
Wealthy stock investors get special treatment from brokers and wealthy bank account
holders get special treatment from the banks, but mutual funds are non-discriminatory. It
doesn't matter whether you have $50 or $500,000; you are getting the exact same manager,

21
the same account access and the same investment.
(g) Risk
In general, mutual funds carry much lower risk than stocks. This is primarily due to
diversification (as mentioned above). Certain mutual funds can be riskier than individual
stocks, but you have to go out of your way to find them. With stocks, one worry is that the
company you are investing in goes bankrupt. With mutual funds, that chance is next to nil.
Since mutual funds, typically hold anywhere from 25-5000 companies, all of the
companies that it holds would have to go bankrupt.
[http://www.appuonline.com/mf/knowledge/advantages-of-mutualfunds.html/ last
accessed on Jan. 13, 2010]

2.1.6 Drawbacks of Mutual Fund

Mutual funds have their drawbacks and may not be for everyone:
Fee and commissions: The Mutual funds charge administrative fees to meet the daily
expenses. Many funds charge brokerage or loads to pay financial planners or
financial consultants, brokers. In case a shareholder does not use the services of
financial advisor. He still has to pay a sales commission.
No Guarantees: All investments bear risk factors. The mutual funds are no different.
A fall in the stock market would trigger a fall in the value of the mutual fund shares.
Although the risk factor pertaining to mutual funds are much lower compared to
mutual funds.
Inefficiency of Cash Reserves: The Mutual Funds maintain big cash reserves, for
situations such as a number of large withdrawals. The investors are provided with
liquidity, and a major portion of the financial resources is maintained as cash, and it is
not invested in some assets.
Management risk: The investment pertaining to the Mutual Funds depends on the
fund manager and his selection of the mutual fund portfolio, which is based on
speculation. If things do not go as expected, the investments may not earn enough
money.
Taxes: The proceeds from the sale of mutual funds are taxable, even if the same is
reinvested in mutual funds.

22
 No Insurance: The Mutual funds are regulated by the central government. However
mutual funds are still not insured against losses.
Trading Limitations: The Mutual Funds usually have high liquidity, but most of the
mutual funds, such as open-ended funds, are bought or sold at the end of the day.
Loss of Control: In case, if the mutual funds are managed by the investor himself, the
portfolio management may go bad and have an adverse effect on the earnings from the
investment.
[http://business.mapsofindia.com/mutual-funds/drawbacks.html/ last accessed on Jan. 13,
2010]

2.1.7 Ten Tips on Buying Mutual Funds

1. Determine your financial objectives and how much money you can afford to
invest.
Make sure the funds objectives coincide with your own. Do not change your objectives
or exceed the amount set aside for investment without careful consideration.
2. Research and obtain all available information before you invest.
Request a copy of the funds prospectus and read it carefully. Also look over the SAI and
the latest shareholder report from each fund you are considering.
3. Determine the amount of all sales charges, management fees and administrative
expenses before you invest.
Some funds charge for reinvestment of dividends and capital gains distributions, which
can add to your costs. See the funds prospectus for a description of all fees and expenses.
4. Never treat the risks of investing in mutual funds lightly.
All mutual funds involve some degree of risk. Unlike money market accounts and
certificates of deposit, mutual funds are not federally insured.
5. Exercise caution when considering investing in funds with junk bond portfolios.
While junk bonds pay a high-rate of return, junk bond companies are more volatile and
more likely to default on bond payments. These factors can seriously affect the funds
performance
6. Do not invest in periodic payment plans unless you are absolutely certain that you
will hold your shares for a long time.

23
If you sell or redeem early or do not complete the plan you may find that a large
portion of your investment has gone to pay sales charges.
7. Learn the consequences of redemptions.
Besides the sales charges for redeeming periodic payment plans before completion, some
funds may charge a redemption fee or a proportion of your investment, known as a
contingent deferred sales load.
8. Call Secretary of State Office to find out whether your broker/financial advisor
and the mutual fund are properly registered in Indian.
Secretary office can tell you if a company or an individual has failed to properly register
or if there is a history of trouble with securities regulators. If there is a history of
problems, this should serve as a red flag to prospective investors.
9. Even after investing in a mutual fund, review the shareholder reports and any
amendments to the prospectus and the Statement of Additional Information (SAI).
10. If you believe you have encountered investment fraud, call Secretary Office.
If something does not seem right, or if you are not satisfied with the answers you have
received, contact the Secretary of States office. We are here to help you!

2.2 INTRODUCTION TO SHARE MARKET

Stocks or share are the area where people tend to invest. What is a Share? Share is a finite
number of equal portions of the capital of the company. In financial world, there are few
kinds of share such as common Share, Preference Share, mutual funds, limited
partnerships, and REIT's. Common stock typically carries voting rights that can be
exercised in corporate decisions. But Preference share does not carry voting rights and it
is legally entitled to receive a certain level of dividend payments before any dividends
can be issued to other shareholders. When a company releases its share to the public for
the first time then its called Initial Public Offering (IPO). Public issuing is also classified
into initial public offering and further public offerings. In both offerings the company
makes detailed disclosures as per DIP guidelines in its offering documents. Normal
advices for buying and selling of shares can be taken from share brokers and friends. I
dont see any website that tells the status of the share. An investor can invest in a IPO by
filling the application form. As per law any public issue should be kept open for

24
minimum of 3days and maximum of 21days. The application accompanied by cash,
cheque or DD should be deposited before closing date as per instruction on the
form.Share market is the market for securities where organized issuance and trading of
shares takes place. It plays an important role in channelizing capital from the investors to
the business houses which consequently leads to the availability of funds for business
expansion. Shares are certificates which represent ownership rights of the holder in a
company. When a company releases its share to the public for the first time then its
called Initial Public Offering (IPO). Public issuing is also classified into initial public
offering and further public offerings. In both offerings the company makes detailed
disclosures as per DIP guidelines in its offering documents.
What is share?
Share or stock is a document issued by a company, which entitles its holder to be one of
the owners of the company. A share is issued by a company or can be purchased from the
stock market.
Shares in the Share Market are either traded through:-
(a) Stock Exchange These are organized market places where stocks, bonds are other
equivalents are traded between the buyers and sellers where exchange acts as a
counter - party to both the participants in case of any default.
(b) Over-the -Counter (OTC) These are not centralized exchanges and the trade takes
place through a network of dealers.
Basically, Share Market can be divided into two parts :-
1. Primary Market It is the market where new issues of securities are offered to the
investors.
2. Secondary Market An investor of a secondary market buys a security from another
participant of the same and not from any issuing corporation (as in case of Primary
Market).
Why Shares
Historically shares have outperformed all the other investment instruments and given the
maximum returns in the long run. In the twenty-five year period of 1980-2005 while the
other instruments have barely manage to generate returns at a rate higher than the
inflation rate(7.10%), on an average shares have given returns of about 17% in a year and

25
that does not even take in account the dividend income from them. Were we to factor in
the dividend income as well, the shares would have given even higher returns during the
same period.

2.2.1 Why Investing in Share Market

i) Dividend Income: investments in shares are attractive as much for the appreciation in
the share prices as for the dividends their companies pay out.
ii) Tax Advantages: shares appear as the best investment option if you also consider the
unbeatable tax benefits that they offer. First, the dividend income is tax-free in the hands
of investors. Second, you are required to pay only a 10% short term capital gains tax on
the profits made from investments in shares, if you book your profits within a year of
making the purchase. Third, you don't need to pay any long-term capital gains tax on the
profits if you sell the shares after holding them for a period of one year. The capital gains
tax rate is much higher for other investment instruments: a 30% short-term capital gains
tax (assuming that you fall in the 30% tax bracket) and a 10% long-term capital gains tax
you don't need to pay any long-term capital gains tax on the profits if you sell the shares
after holding them for a period of one year. The capital gains tax rate is much higher for
other investment instruments: a 30% short-term capital gains tax (assuming that you fall
in the 30% tax bracket) and a 10% long-term capital gains tax
iii) Easy Liquidity: shares can also be made liquid anytime from anywhere (on
sharekhan.com you can sell as here at the click of a mouse from anywhere in the world)
and the investments can be realized in just two working days .Considering the high
returns, the tax advantages.

2.2.2 Difference between Primary and Secondary Markets

In the primary market securities are issued to the public and the proceeds go to the
issuing company. Secondary market is a term used for stock exchanges, where stocks
are bought and sold after they are issued to the public. In the primary market, securities
are offered to public for subscription for the purpose of raising capital or fund. Secondary
market is an equity trading venue in which already existing/pre-issued securities are
traded among investors. Secondary market could be either auction or dealer market.

26
While stock exchange is the part of an auction market, Over-the-Counter (OTC) is a part
of the dealer market. A primary offering, such as with a corporate bond, means you are
buying it directly from the issuer, at par value, usually. A secondary market is where you
sell or buy existing issues i. e. If you bought a bond last year, now need to get your
principal, you can sell it in the secondary market. You may not get par value. If rates have
fallen since you bought it, you could get a premium for it. A primary market refers to any
market where new shares of stock are sold. In this case, the company is not involved in
the transaction. The main difference between primary and secondary markets has to do
with who benefits from the sale or purchase of a corporations stock.

Primary Markets: The first time that a company shares are issued to the public, it is by a
process called the initial public offering (IPO). In an IPO company offloads a certain
percentage of its totals shares to the public at a certain price. Most IPOs these days do not
have a fixed offer price instead they follow a method called the book building process,
where the offer price is placed in a hand or a range with the highest and the lowest value.
The public can bid for the shares at any price in the band specified. Once the bid come in
the company evaluates all the bids and decides on an offer price in that range. After the
offer price is fixed the company either allots its shares to the people who had applied for
its shares or returns them their money.
Secondary Markets: Once the offer price is fixed and the shares are issued to the people,
stock exchanges facilitate the trading of shares for the general public. Once a stock is
listed on an exchange, people can start trading in its shares. In a stock exchange the
existing shareholders sell their shares to anyone who is willing to buy them at a price
agreeable to both the parties. Individuals cannot buy or sell shares in a stock exchange
directly they have to execute their transactions through authorized members of the stock
exchange who are also called stock brokers.
Money is not that simple to be earned; also it should be wisely invested, so as to get the
best profits out of your investment. While investing there is always a chance of risk, but
the effectiveness of reducing the risks and enhancing your profits comes with experience
and also by following some wise guidelines. If you want to benefit from your investment
the easiest option is to invest in stock market and to earn from the rising amounts of

27
stocks. But you should always remember that there are risks involved here also, but you
can minimize them by following a few guidelines mentioned below on making money
with stocks.
1. Define your own goal: it is always important that you know your needs and know the
amount of money or profit you are looking forward to. Obviously you will make profit
out of it, but how much you require making is what you should know prior to investment.
If you sort out all these things in your mind well in hand before, you will have a wider
picture of the benefits you can get from your investment in the future.
2. Do not follow what the world is doing. You have many options from which you need
to decide as to which tactic you want to choose for your investment. Then according to
your own financial goals, pick up one tactic, and learn the most about it. Learning all the
aspects about it will even help you to analyze the risks involved in it. For instance, forex
is the best place to invest in. it is just a mouse click away to invest in the foreign
exchange, and you can earn high returns from it immediately. So if you are well versed
with all the information, the entire process of investment and further will be easy for you.
3. Highlight the major risks of your chosen tactic: it's good to be optimistic in life, but
not with your investments. In this case you should always be realistic and should assess
all the pros and cons of your investment wisely and just fully. You should figure out a
proper and practical plan through which you can manage all the steps of your investment.
So it is important that you do not just be excited about investing, but also find out the
risks involved. This will ensure a higher profit and will minimize the chances of loss.
4. Always collect your money when the profit potential of the stocks is the highest.
Now that you have a well versed plan and know where to invest, its time to understand
that it is equally essential to collect your profit well in time before they again diminish.
You should always know when to withdraw your investments from the market, so as to
ensure the smooth working of the process.
5. Always look for alternatives which might have a lower risk factor. And always keep
another optional plan handy, that might be needed incase your current plan does not
prove its worth. Always keep boundaries and know when to withdraw from the market.
These things help in minimizing loss.
6. Give all that you have to your investment, and will surely give you the best results.

28
[http://ezinearticles.com/?6-Easy-Steps-to-Invest-in-Stocks-and-Make-
Money&id=2474073/ last accessed on Dec. 26, 2009]

2.2.3 Listing of Securities

Listing means admission of the securities to dealings on a recognised stock exchange.
The securities may be of any public limited company, Central or State Government,
quasi-governmental and other financial institutions/corporations, municipalities, etc.
The objectives of listing are mainly to:
Provide liquidity to securities;
Mobilize savings for economic development;
Protect interest of investors by ensuring full disclosures.
The Exchange has a separate Listing Department to grant approval for listing of securities
of companies in accordance with the provisions of the Securities Contracts (Regulation)
Act, 1956, Securities Contracts (Regulation) Rules, 1957, Companies Act, 1956,
Guidelines issued by SEBI and Rules, Bye-laws and Regulations of the Exchange.
A company intending to have its securities listed on the Exchange has to comply with the
listing requirements prescribed by the Exchange.

[I] Minimum Listing Requirements for New Companies

(A) Minimum Capital:
1. New companies can be listed on the Exchange, if their issued & subscribed equity
capital after the public issue is Rs.10 Crores. In addition to this the issuer company
should have a post issue net worth (equity capital + free reserves excluding
revaluation reserve) of Rs.20 Crores.
2. For new companies in high technology (i.e. information technology, internet, e-
commerce, telecommunication, media including advertisement, entertainment etc.)
the following criteria will be applicable regarding threshold limit:
i. The total income/sales from the main activity, which should be in the field
of information technology, internet, e-commerce, telecommunication, media
including advertisement, entertainment etc. should not be less than 75% of the

29
 total income during the two immediately preceding years as certified by the
Auditors of the company.
ii. The minimum post-issue paid-up equity capital should be Rs.5 Crores.
iii. The minimum market capitalization should be Rs.50 Crores. (The
capitalization will be calculated by multiplying the post issue subscribed number
of equity shares with the Issue price).
iv. Post issue net worth (equity capital + free reserves excluding revaluation
reserve) of Rs.20 Crores.
(B) Minimum Public offer:
As per Rule 19(2) (b) of the Securities Contracts (Regulation) Rules, 1957, securities of a
company can be listed on a Stock Exchange only when at least 25% of each class or kind
of securities is offered to the public for subscription. In case of IPOs by unlisted
companies in the IT& entertainment sector, at least 10% of the securities issued by the
company may be offered to the public subject to the following:
Minimum 20 lac securities are offered to the public (excluding reservation, firm
allotment and promoters contribution)
The size of the offer to the public is minimum 50 cores.
For this purpose, the term "offered to the public" means only the portion offered to the
public and does not include reservations of securities on firm or competitive basis. SEBI
may, however, relax this condition on the basis of recommendations of stock exchange(s),
only in respect of a Government company defined under Section 617 of the Companies
Act, 1956.
[II] Minimum Listing Requirements for Companies Listed On Other Stock
Exchanges
The Governing Board of the Exchange at its meeting held on 6th August, 2002 amended
the direct listing norms for companies listed on other Stock Exchange(s) and seeking
listing at BSE. These norms are applicable with immediate effect.
1. The company should have minimum issued and paid up equity capital of Rs. 3 cores.
2. The Company should have profit making track record for last three years. The
revenues/profits arising out of extra ordinary items or income from any source of
non-recurring nature should be excluded while calculating distributable profits.

30
3. Minimum net worth of Rs. 20 cores (net worth includes Equity capital and free
reserves excluding revaluation reserves).
4. Minimum market capitalization of the listed capital should be at least two times of the
paid up capital.
5. The company should have a dividend paying track record for the last 3 consecutive
years and the minimum dividend should be at least 10%.
6. Minimum 25% of the company's issued capital should be with Non-Promoters
shareholders as per Clause 35 of the Listing Agreement. Out of above Non Promoter
holding no single shareholder should hold more than 0.5% of the paid-up capital of
the company individually or jointly with others except in case of Banks/Financial
Institutions/Foreign Institutional Investors/Overseas Corporate Bodies and Non-
Resident Indians.
7. The company should have at least two years listing record with any of the Regional
Stock Exchange.
8. The company should sign an agreement with CDSL & NSDL for Demat trading.
[III] Minimum Requirements for Companies Delisted By This Exchange Seeking
Relisting of This Exchange
The companies delisted by this Exchange and seeking relisting are required to make a
fresh public offer and comply with the prevailing SEBI's and BSE's guidelines regarding
initial public offerings.
[IV] Permission To Use The Name Of The Exchange In An Issuer Companys
Prospectus
The Exchange follows a procedure in terms of which companies desiring to list their
securities offered through public issues are required to obtain its prior permission to use
the name of the Exchange in their prospectus or offer for sale documents before filing the
same with the concerned office of the Registrar of Companies. The Exchange has since
last three years formed a "Listing Committee" to analyze draft prospectus/offer
documents of the companies in respect of their forthcoming public issues of securities
and decide upon the matter of granting them permission to use the name of "Bombay
Stock Exchange Limited" in their prospectus/offer documents. The committee evaluates

31
the promoters, company, project and several other factors before taking decision in this
regard.
[V] Submission of Letter of Application
As per Section 73 of the Companies Act, 1956, a company seeking listing of its securities
on the Exchange is required to submit a Letter of Application to all the Stock Exchanges
where it proposes to have its securities listed before filing the prospectus with the
Registrar of Companies.
[VI] Allotment of Securities
As per Listing Agreement, a company is required to complete allotment of securities
offered to the public within 30 days of the date of closure of the subscription list and
approach the Regional Stock Exchange, i.e. Stock Exchange nearest to its Registered
Office for approval of the basis of allotment.
[VII] Trading Permission
As per Securities and Exchange Board of India Guidelines, the issuer company should
complete the formalities for trading at all the Stock Exchanges where the securities are to
be listed within 7 working days of finalization of Basis of Allotment. A company should
scrupulously adhere to the time limit for allotment of all securities and dispatch of
Allotment Letters/Share Certificates and Refund Orders and for obtaining the listing
permissions of all the Exchanges whose names are stated in its prospectus or offer
documents. In the event of listing permission to a company being denied by any Stock
Exchange where it had applied for listing of its securities, it cannot proceed with the
allotment of shares. However, the company may file an appeal before the Securities and
Exchange Board of India under Section 22 of the Securities Contracts (Regulation) Act,
1956.
[VIII] Requirement of 1% Security
The companies making public/rights issues are required to deposit 1% of issue amount
with the Regional Stock Exchange before the issue opens. This amount is liable to be
forfeited in the event of the company not resolving the complaints of investors regarding
delay in sending refund orders/share certificates, non-payment of commission to
underwriters, brokers, etc.

32
[IX] Payment of Listing Fees
All companies listed on the Exchange have to pay Annual Listing Fees by the 30th April
of every financial year to the Exchange as per the Schedule of Listing Fees prescribed
from time to time.
The schedule of listing fees for the year 2004-2005, prescribed by the Governing Board
of the Exchange and approved by the Securities and Exchange Board of India is given
here under:
[X] Compliance with Listing Agreement
The companies desirous of getting their securities listed are required to enter into an
agreement with the Exchange called the Listing Agreement and they are required to make
certain disclosures and perform certain acts. As such, the agreement is of great
importance and is executed under the common seal of a company. Under the Listing
Agreement, a company undertakes, amongst other things, to provide facilities for prompt
transfer, registration, sub-division and consolidation of securities; to give proper notice of
closure of transfer books and record dates, to forward copies of unabridged Annual
Reports and Balance Sheets to the shareholders, to file Distribution Schedule with the
Exchange annually; to furnish financial results on a quarterly basis; intimate promptly to
the Exchange the happenings which are likely to materially affect the financial
performance of the Company and its stock prices, to comply with the conditions of
Corporate Governance, etc.

33
2.3 Need, Scope and Objectives of the Study

Need of the Study

The brief study on review of literature revealed the fact that number of studies have been
carried out in the area of Mutual Funds and Equity Share Market but in Indian context,
still a wide gap exist in the research field with particular stress on the same aspect. In
order to fill the research gap the need aroused to study comparative analysis of Mutual
Funds and Equity Share Market

Scope of the Study

The survey was done within the boundaries of Jalandhar city and was restricted to sample
size of 100 investors.

Objectives of the Study

The current study has been undertaken to achieve the following objectives:
To know the investors preference towards mutual funds and equity share.
To know the investors objectives and expectations from mutual funds and equity
share market.
To study the shifting of investors preference equity share market to mutual funds and
vice versa.
To study the factors those are responsible for changing preference and future
expectations from these investment avenues.
To understand the problems faced by investors and on that basis make some
recommendations.

34
2.4 LIMITATIONS OF THE STUDY
Due to constraints of time and resources, the study is likely to suffer from certain
limitations. Some of these are mentioned here under so that the findings of the study may
be understood in a proper perspective.
The limitations of the study are:
The research was carried out in a short period. Therefore the sample size and the
parameters were selected accordingly so as to finish the work within the given time
frame.
The information given by the respondents might be biased some of them might not be
interested to give correct information.
Some of the respondents could not answer the questions due to lack of knowledge.
Some of the respondents of the survey were unwilling to share information.

35
 CHAPTER-3
REVIEW OF LITERATURE

36
 REVIEW OF LITERATURE

Many researches have been conducted by the various researchers on mutual funds and on
equity share market. They found the various results on the difference between the
investment avenues i .e. mutual funds and equity share market. The various researches by
various authors are as:
Gupta (2005) conducted a research and concluded that various studies reported in the
literature overwhelmingly reach the conclusion that the mutual funds in general have not
outperformed the market. This result seems at variance with the tremendous growth the
mutual fund industry has experienced over the past two decades. If the market efficiency
hypothesis is valid, and there is considerable evidence in its support, then a mutual fund
may not be able to consistently outperform the market. However, while an average
mutual fund does not outperform the market, the mutual fund industry as a whole may be
able to do so.
Benson (2009) conducted a research and concluded that the investment performance of
professionally managed portfolios, in general, and mutual funds, in particular, has been
the subject of considerable attention in finance. Fama has suggested that overall portfolio
performance be broken down in such a manner that the individual sources of performance
can be identified. Two basic sources are: (1) the ability of the portfolio manager to
forecast price movements of individual common stocks relative to stocks in general
(selectivity or micro forecasting); and (2) the ability to forecast the direction of the stock
market relative to fixed income securities (timing or macro forecasting).
Ciccotello and Grant (2010) conducted a study and concluded that should individuals
choose the largest or smallest equity funds for investment? This study explores the
relationship of equity fund size to performance. Historical returns of large funds are
found to be superior to their smaller peers. Yesterday's best performing funds tend to
become today's largest funds as individuals invest heavily in response to the
communications about the funds past success. But the findings suggest that, once large,
equity funds do not outperform their peers. Especially for funds in aggressive growth
objectives, the advantages of being small appear to outweigh the disadvantages. For
individual investors with aggressive growth objectives, a strategy of investing in smaller

37
funds may thus be wealth maximizing. The growth in equity market size and trading
activity:
Richard (2011) conducted a research and concluded that this paper analyzes a new
dataset for the aggregate daily trading of all foreign investors in six Asian emerging
equity markets and provides two new findings. First, foreigners' flows into several
markets show positive feedback trading with respect to global, as well as domestic,
equity returns. The nature of this trading suggests it is due to behavioral factors or
foreigners extracting information from recent returns, rather than portfolio rebalancing
effects. Second, the price impacts associated with foreigners' trading are much larger than
earlier estimates. The results suggest that foreign investors and external conditions have a
larger impact on emerging markets than implied by previous work.
Heung and Lee (2011) conducted a research and concluded that whether the market
demand curve for equities is downward sloping. Unlike previous studies that examine
individual stocks' demand curves, we look at the aggregate demand curve. As a proxy for
aggregate demand, we employ equity mutual fund flows. Unlike previous studies that
focus on events that are unlikely to convey new information to the market, they devise an
empirical framework that disentangles the price-pressure effect and the information
effect. they do not find evidence for the price-pressure effect that equity fund flows
directly affect stock market prices in the presence of fundamentals of firms. Instead, they
find that equity fund flows seem to be influenced by the performance of the stock market
and that investors try to forecast fundamentals of firms and change their demand for
stocks accordingly. Overall, these findings are with a horizontal market demand curve for
equities.
Prather and Middleton (2013) suggested that decisions made by an individual or a team
of decision makers should lead to the same performance outcome. Conversely,
behavioural decision-making theory argues that decisions made by teams result in
superior micro or macro forecasts and performance outcomes. Our tests using mutual
funds support the classical decision-making theory. The empirical results are time
invariant and robust with respect to the selected index or model specification.
Detzel (2013) conducted a study and concluded that Mutual fund investors who use an
asset allocation model must be able to readily identify each funds equity class. Prior

38
studies examine two approaches to classifying equity funds, factor loadings and portfolio
characteristics. Their implementation is not feasible for many investors, however. He
investigates a practicable alternative, Morningstars characteristics-based style box. He
fined that it does not predict mutual fund returns as well as a discrete factor-loadings-
based alternative during 1994 to 2004 overall, but predicts better in 2003 to 2004 after
Morningstar changed its methodology. He also fined that fund classifications drift
considerably over the years. Actively-managed-fund investors need.
Lee (2013) conducted a study and concluded that new evidence on the role of
macroeconomic and institutional factors in equity market development and on the sources
of equity market growth. Using panel data on 33 countries, He find that development of
financial intermediaries and trade openness are positively associated with equity market
size, and that development of financial intermediaries is also positively associated with
the level of activity in equity markets. Government consumption is negatively associated
with equity market activity. He construct a direct estimate of the effect of institutional
factors on equity market development that compares a country's actual level of
development to a hypothetical best-practice country having the same macroeconomic
fundamentals as the original country. He show that the level of equity market
development of an average country is around 30% below its maximum potential.
Sharpe (2014) conducted a research and concluded that this paper attempts to shed some
light on the range of preferences of individual investors. By and large, the choices made
by the participants in this survey conform well to the assumption that the representative
investor's preferences are close to those of an individual maximizing the expected value
of a utility function that exhibits constant relative risk aversion. While there are
differences, they are of relatively small significance, both statistically and economically.
There is some evidence that the typical participant desires some "downside protection" in
severe bear markets, but the markets in question have less than a 5% probability of
occurrence and the cost of the desired protection would be less than 1% of the value of
the participants' overall positions. With this small exception, these results are broadly
consistent with widely-used assumptions about both market return-generating processes
and investor preferences.
Sarich (2015) conducted a research and concluded that the idea that capital flows

39
accelerate and decelerate in response to differential rates of return on real investment is
common to virtually all of economic theory. This paper examines the nature of this
process, especially the relationship between returns in the stock market and returns on
real investment.
Shaikh (2016) made the case that the rate of return on new physical (real) investment is
the "required" rate of return for the stock market and that competitive forces produce a
rough equalization between these two rates of return, what he terms "turbulent arbitrage."
In contrast to neoclassical theories of perfect competition, with its notions of perfect
information and convergence to a uniform rate of return, the notion of
"turbulent arbitrage" is a dynamic process that requires a tendency toward convergence as
well as the constant differentiation of profit rates
Botwinick (2016) concluded that data on rates of return at the country, industry, and firm
level for Japan, Germany, the United Kingdom, and the United States are analyzed and
correlated with Shaikhs "incremental rate of return on real investment" which, it
is argued, is the target of the equalization process. Statistical and econometric tests based
on time series methods and pooling techniques support the hypothesis that the rate of
return on equity prices is linked to the incremental return on real investment. In addition,
this association is examined for two industriessteel and retail tradeacross these same
four countries. Global and domestic equity markets are found to be significantly
correlated with the incremental returns for the steel industry but not for the retail trade
sector.

It has been analysed from the reviews that there are certain grounds on the basis of which
an investor makes his perception about any investment alternative. Investors consider the
risk and return analysis while making any investment. The study has also enabled the
reader to understand the pros and cons of investing in various investment options and is a
guideline to make right decision of pooling their monies in the right investment option.

40
 CHAPTER-4
RESEARCH
METHODOLOGY

41
 RESEARCH METHODOLOGY

Research is the systematic process of collecting and analyzing information to increase our
understanding of the phenomenon under study. It is the function of the researcher to
contribute to the understanding of the phenomenon and to communicate that
understanding to others.

4.1 RESEARCH DESIGN

The study follows the descriptive research design & Conclusion Oriented Research
design.
Descriptive Research: A type of conclusive research which has as its major
objective the description of something-usually market characteristics or functions.
In other words descriptive research is a research where in researcher has no
control over variable. It just presents the picture which has already studied.
Conclusion Oriented Research: Research designed to assist the decision maker
in the situation. In other words it is a research in which researcher gives their
views about the research.

4.2 SAMPLING DESIGN

The sample design of a sample survey refers to the techniques for selecting a profitability
sample and the methods to obtain estimates of the survey variables from the selected
sample.
4.2.1 Sampling Universe: The universe is the most commonly defined as everything that
physically exists; the entirely of space and time, all forms of matter, energy and
momentum, and the physical laws and constants that govern them. The respondents of the
survey were individuals who are investing in either mutual funds or equity share market
or both.
4.2.3 Sampling Unit: A member of a sample selected from a sampling frame is called
sampling unit.
The sampling unit was the individual respondents who investing either in equity shares or
in mutual funds.

42
4.2.3 Sample Size: The number of member in a sample is called sample size. The sample
size was 100.
4.3.4 Sampling Technique: Convenience sampling technique was used for the survey.
Sometimes called grab or opportunity sampling, this is the method of choosing items
arbitrarily and in an unstructured manner from the frame. In the survey non probability
judgmental sampling was used.

4.3 DATA COLLECTION & INTERPRETATION

4.3.1 Data Collection
Research work is descriptive in nature. Information has been collected from both Primary
and Secondary data.
Secondary Data: The secondary data are those data which have already been
collected by someone else and which have already been passed through the
statistical process. Magazines, journals and articles available on internet are used
as source of secondary data.
Primary Data: Primary data is first hand information and thus happen to be
original. Such original data is complied and studied for a purpose. Questionnaire
is prepared in order to get first hand information.
4.3.2 Tools of Analysis and Presentation
To analyze the data, responses of respondents were calculated in tabulated form and data
is represented with the help of tables and bar diagrams. With the help of charts, it is tried
to find authenticity and effectiveness of recruitment and selected policies.

43
 DATA ANALYSIS AND INTERPRETATION

Table 4.1 Demographics Profile

Demographics No. of Respondents Percentage
Age:
15-25 Yrs 9 9
26-35 yrs 49 49
36-45 yrs 26 26
Above 45 yrs 16 16
Total 100 100
Occupation:
Student 2 2
Business 52 52
Service 43 43
House-wife 3 3
Total 100 100

Analysis & Interpretation

The above table showed that majority of the investors (49%) who invest in mutual fund
and equity share market were with the age of 26-35 years. The investors with the age of
36-45 years were also investing in mutual fund and equity share market. Majority of the
investor (52%) were from business background who invest in mutual fund and equity
share market whereas 43% of respondents were service class people who invest in mutual
fund and equity share market.

44
1. To know the investment avenue you invest in.

Table 4.2 Investment Preference of the Investors

Investment Avenues No. of Respondents Percentage
Mutual Funds 29 29
Equity 22 22
Both 49 49
Total 100 100

Figure 4.1 Investment Preferences of the Investors

Analysis & Interpretation

From the survey it was found that 29 respondents prefer to invest in mutual funds, 22
respondents prefer to invest in equity shares, and 49 respondents prefer to invest in both
the avenues. Hence it can be concluded that majority of respondents prefer to make
investment in mutual funds an equity shares both.

45
2. To know the investment horizon during which you like to stay invested.

Table 4.3 Investment Horizons During Which Investor Like to Stay Invested
Duration of Investment No. of Respondents Percentage
Days 13 13
Weeks 6 6
Months 38 38
Years 43 43
Total 100 100

Figure 4.2 Investment Horizons During Which Investor Like to Stay Invested

Analysis & Interpretation

The question aimed at getting information regarding the time horizon during which the
investor like to stay invested. 13 respondents like to stay invested in days, 6 prefer to
invest in weeks, 38 prefer to stay invested in months and 43 prefer in years. Hence it can
be concluded that a longer time horizon i.e. years are majority preferred by respondents.

46
3. To know the sector that gives more returns to investors.

Table 4.4 Sector that Gives More Returns

Sectors No. of Respondents Percentage
Mutual funds 18 18
Share market 52 52
Equal 11 11
Cant say 19 19
Total 100 100

Figure 4.3 Sectors that Gives More Returns

Analysis & Interpretation

From the survey it was found that 18 percent respondents said that mutual funds gives
more returns, 52 percent respondents said that equity shares gives more returns, 11
percent respondents said both gives equal returns and 19 percent respondents cant say
about the return. Hence it can be concluded that equity market gives more returns to the
investors.

4. Rank the sources in order of reliability from 1-5, 1 being the most important
source

47
 Table 4.5 Preference of the Respondents
RANKS Rank1 Rank2 Rank3 Rank4 Rank5 Total
Source of reliability

Advertisement 26 6 49 16 3 264

Advice from tax 56 21 6 9 8 192

consultants/CA
Recommendations from 9 31 26 26 8 293
friends and relatives
Financial advisors 66 9 10 6 9 183

News Papers/Magazines 3 18 26 39 14 343

Analysis & Interpretation

As in the above table various sources were ranked on the basis of reliability. Financial
advisors was ranked first with weighted average score of 183 and advices from the tax
consultants was ranked second with weighted average score of 192, it means that
investors are reliable on professionals advisors and tax consultants while making
investment either in equity share or in mutual funds. Respondents was ranked third to
advertisement with weighted average score of 264, it means that they have less reliability
on advertisements. They were ranked fourth to recommendations from friends and
relatives with weighted average score of 293 and ranked fifth to news papers and
magazines it means that they have not reliability on these sources. Hence it can conclude
that investors considered advice from financial advisors and tax consultants while making
investment.

48
5. To know how the respondents grade mutual fund investment as compared to
investment in equity share market.

Table 4.6 Grading of Mutual Funds as Compared to Equity Shares

Factor/Grade High Moderate Low Total
Return 20 58 22 100
Risk 6 44 50 100
Liquidity 15 73 12 100

Figure 4.4 Grading of Mutual Funds as Compared to Equity Shares

Analysis & Interpretation

From the survey it was found that most of the investors believe that mutual funds fetch
moderate returns as compared to equity market and having a low risk and it has a
moderate liquidity as compared to equity shares. It is also ensuring sufficient liquidity, as
most schemes are open ended in India.

6. Rank Factors considered while making investment in mutual funds from 1-8, 1
being the most important factor that you considered.

49
 Table 4.7A Factors Considering While Investing in Mutual Funds
RANKS Rank Rank Rank Rank Rank Rank Rank Rank Total
Factors 1 2 3 4 5 6 7 8
considered

Financial 12 3 18 14 6 9 10 6 330
position
Current 9 9 5 13 2 13 8 19 390
market
position
Goodwill 2 6 12 10 3 9 18 18 429
Future 1 5 7 16 8 15 19 7 415
prospects
Risk 39 113 3 7 3 5 4 6 219
Safety 20 25 13 6 4 3 5 3 227
Tax benefits 18 19 10 13 2 6 3 7 261
Capital 26 8 7 8 16 5 7 1 262
appreciation

Analysis & Interpretation

As in the above table various factors were ranked that was considered by investors while
making investment. Risk was ranked first with weighted average score of 219 and safety
was ranked second with weighted average score of 227, it means that investors firstly
considered the risk involved in the fund and they also considered that how much risk
involved in the security. Hence it can be concluded that inventors first of all considered
the risk and safety. Respondents were ranked third to tax benefits and fourth rank to
capital appreciation. The least important that was considered goodwill of the asset
management company.
Table 4.7B Factors Considering While Investing in Equity Share Market
RANKS Rank Rank Rank Rank Rank Rank Rank Rank Total
Factors 1 2 3 4 5 6 7 8
considered

Financial 19 13 11 12 4 6 2 4 228

50
position
Current 38 10 2 6 2 4 3 6 191
market
position
Goodwill 17 17 10 12 2 5 2 6 231
Future 25 7 6 7 13 5 6 2 238
prospects
Risk 8 11 4 9 2 8 15 14 353
Safety 11 3 13 14 5 7 10 8 313
Tax benefits 7 14 8 15 4 9 8 6 297
Capital 22 6 5 15 7 6 7 3 253
appreciation

Analysis & Interpretation

As in the above table various factors were ranked that was considered by investors while
making investment in equity share market. Current market position was ranked first with
weighted average score of 191 and financial position of the company was ranked second
with weighted average score of 228, it means that investors firstly considered the current
market position and secondly financial position of the company while making investment
in equity shares. Respondents were ranked third to goodwill of the company and fourth
rank to future prospects of the company. The least important that was considered risk of
the asset management company

7. To know the change in investment pattern in the recent past.

Table 4.8 Change in Investment Pattern

Investment pattern No. of Respondents Percentage
From equity to mutual funds 57 57
From mutual funds to equity 2 2
Change within equity market 14 14
Change within mutual fund market 8 8
No change 19 19
Total 100 100

51
 Figure 4.5 Change in Investment Pattern

Analysis & Interpretation

From the survey it was found that most of the investors i.e. 57 percent was shift from
equity share market to mutual funds and 19 percent was said that they have not change
their investment pattern. Rest 14 percent was changed their investment pattern within the
equity market. Only 2 percent respondents were changing their investment pattern from
mutual funds to equity.
8. Time horizon for making a decision of changing in an investment pattern.

Table 4.9 Time Horizon to Change an Investment Pattern

Time horizon No. of Respondents Percentage
Less than 1 year 9 9
1 to 2 year 23 23
2 to 5 years 38 38
More than 5 year 30 30
Total 100 100

Figure 4.6 Time Horizon to Change an Investment Pattern

52
Analysis & Interpretation
From the survey it was found that most of the investors i.e. 38 percent was change their
investment pattern within 2 to 5 years. Rest 30 percent take more than 5 years, 23 percent
take 1 to 2 years and only 9 percent people change their investment pattern within 1 year.
There is a difference between sample size and number of respondents because out of 100
respondents 81 respondents was change their investment pattern

53
9. To know about the factors responsible for the shifting.

Table 4.10A Factor Responsible For Shifting From Equity to Mutual Funds
Factors No. of Respondents Percentage
More diversified investment 14 14
High return 12 12
More flexibility 24 24
Tax saving benefits 9 9
Secured returns 15 15
Less operating cost 0 0
Professional assistance 0 0
Closely related to stock market 11 11
More investors friendly 15 15
Lack of trust on ability of fund 0 0
manager
Total 100 100

Figure 4.7A Factor Responsible For Shifting From Equity to Mutual Funds

Analysis & interpretation

The above data depict that 24 percent respondents was shift due to flexibility in mutual
funds, 15 percents was shift due to secured returns and more investors friendly, 14
percent was shift due to more diversified investment, 12 percent due to high returns, 11

54
percent due to closely relatedness of mutual funds with stock market and just 9 percent
due to tax saving benefits. It is concluded that flexibility in mutual funds was responsible
for the shift from equity to mutual funds.

Table 4.10B Factor Responsible For Shifting From Mutual Funds to Equity
Factors No. of Respondents Percentage
More diversified investment 0 0
High return 50 50
More flexibility 0 0
Tax saving benefits 0 0
Secured returns 0 0
Less operating cost 0 0
Professional assistance 0 0
Closely related to stock market 0 0
More investors friendly 0 0
Lack of trust on ability of fund 50 50
manager
Total 100 100

55
 Figure 4.7B Factor Responsible For Shifting From Mutual Funds to Equity

Analysis & Interpretation

From the survey it was found that out of 100 respondents only 2 persons was shift from
mutual funds to equity market. 50 percent of respondents were shift due to high return in
equity market and other 50 percent due to lack of trust on ability of fund manager. So it
was concluded that high return and lack of trust on fund manager were responsible for the
shift from mutual funds to equity market.

56
10. Reasons for making investment in mutual funds and in equity share market.

Table 4.11 Reasons of Investment in Mutual Funds and Equity Market

Reasons No. of Respondents Percentage
Safety 9 9
Tax savings 36 36
Capital appreciation 13 13
High return 15 15
Liquidity 17 17
Minimization of risk 24 24
Total 100 100

Figure 4.8 Reasons of Investment in Mutual Funds and Equity Market

Analysis & Interpretation

From the survey it was found that reasons for making investment for both mutual fund
and equity was tax saving as 36 percent of investors agree this. 24 percent invest to
minimize the risk, 17 percent for liquidity, 15 percent invest to get a higher returns, 13
percent for capital appreciation and 9 percent for safety. So it can be concluded that
majority of respondents invest for getting a tax benefits.
11. To know which sector is better in terms of only returns

Table 4.12 Sector that is Better in Terms of Return

57
 Sector No. of Respondents Percentage
Equity Shares 49 49
Mutual Funds 22 22
Both 29 29
Total 100 100

Figure 4.9 Sector that is Better in Terms of Return

Analysis & Interpretation

From the survey it was found that 49 percent of the respondents were said that equity
gives more return. But 29 percent of the respondents were said that both equity and
mutual fund gives more returns and 22 percent respondents were said that mutual funds
give more returns. Hence it can be concluded that equity share market generate more
returns.

12 Kindly rate the following statements on a scale of 1to5. 5 being strongly disagree
and 1 being strongly agree.

Table 4.13 Satisfaction of Respondents

58
Statements Strongly Agree Neutral Disagree Strongly Total
agree(1) (2) (3) (4) Disagree
(5)
Mutual fund movements depend 46 32 19 3 0 179
upon stock market movements.
Shares are preferred for 36 55 6 3 0 176
investment because of tax
benefits.
Mutual funds are beneficial for 17 42 36 5 0 229
small investors who have not
knowledge about share market.
Mutual funds give better return 11 37 36 12 4 261
than Equity shares or
Derivatives.
When there is fall in stock 21 42 24 7 6 235
market Mutual funds affect
least.
Only investors who have their 7 48 34 11 0 249
own business are investing in
equity share market.
Mutual funds hold a great share 13 27 32 20 8 283
of Indian stock market.
Whole money invested in share 12 44 38 6 0 238
market are in the hands of
investors rather in mutual funds
entry load has been paid.
Mutual fund investors analyze 12 49 33 5 1 234
funds by considering stock
indices.

Analysis & Interpretation

As from the above table no 5.7 comparison was done between maximum score and sub
matted score. Maximum score is the score which represents the dissatisfaction level
among the respondents. So, information related to the level of satisfaction or least

59
satisfaction to various factors influencing the satisfaction level of respondents was
interpreted in following manner-:
It is clear that the statement that Mutual fund movements depend upon stock market
movements is near to strongly agree and agree. So the respondents agree to the
statement with summated score of 179.
It is clear that the statement that Shares are preferred for investment because of tax
benefits. is near to strongly agree and agree. So the respondents agree to the statement
with summated score of 176.
It is clear that the statement that Mutual funds are beneficial for small investors who
have not knowledge about share market. is between agreed and neutral but is closer to
agree level. So the respondents agree to the statement with summated score of 229.
It is clear that the statement that Mutual funds give better return than Equity shares or
Derivatives is between agreed and neutral but is closer to agree level. So the respondents
were agreeing to the statement with summated score of 261.
It is clear that the statement that When there is fall in stock market Mutual funds affect
least. is between agreed and neutral but is closer to agree level. So the respondents agree
to the statement with summated score of 235.
It is clear that the statement that Only investors who have their own business are
investing in equity share market. is between agreed and neutral but is closer to agree
level. So the respondents agree to the statement with summated score of 249.

60
13. Percentage returns of investors of investment in shares and mutual funds
Table 4.14A Return Ratio of Mutual Funds since the Time of Investment
Return ratio No. of Respondents Percentage
Less than 20% 47 47
Between 20-40% 25 25
Between 40-60% 24 24
Above 60% 6 6
Total 100 100

Figure 4.10A Return Ratio of Mutual Funds Since the Time of Investment

Analysis & Interpretation

From the survey it was found that 47 percent of investors have a return in less than 20
percent since they have make their investment, 25 percent have earn a profit between 20
to 40 percent, 24 percent have a return between 40 to 60 percent and only 6 percent
people have a return above 60 percent.

Table 4.14B Return Ratio of Equity Shares Since the Time of Investment
Return ratio No. of Respondents Percentage

61
 Less than 20% 9 9
Between 20-40% 12 12
Between 40-60% 31 31
Above 60% 48 48
Total 100 100

Figure 4.10B Return Ratio of Equity Shares Since the Time of Investment

Analysis & Interpretation

From the survey it was found that 49 percent of investors have a return in above 60
percent since they have make their investment, 33 percent have earn a profit between 40
to 60 percent, 12 percent have a return between 20 to 40 percent and only 6 percent
people have a return less than 20 percent. So majority of respondents were got a return
between 40 to 60 percent.

14. Various problems faced by investors while making investment in mutual funds
and equity shares.

Table 4.15A Problems Faced By Investors in Mutual Funds

62
 Problems No. of Respondents Percentage
Lack of accurate information 47 47
Documentation 25 25
Commission 6 6
Risk involved 24 24
Total 100 100

Figure 4.11A Problems Faced By Investors in Mutual Funds

Analysis & Interpretation

From the survey it was found that 47 percent of respondents said that the major problem
faced by them while investing in mutual fund is lack of accurate information, the other
big problem is documentation involved that was told by 25 percent respondents, 24
percent face problem regarding risk involved.

Table 4.15B Problems Faced By Investors in Equity Market

Problems No. of Respondents Percentage
Lack of accurate information 54 54
Documentation 8 8
Commission 31 31
Risk involved 7 7

63
 Total 100 100

Figure 4.11B Problems Faced By Investors in Equity Market

Analysis & Interpretation

From the survey it was found that 49 percent of respondents said that the major problem
faced by them while investing in equity market is lack of accurate information, the other
big problem is commission involved that was told by 33 percent respondents, 12 percent
face problem regarding documentation.

15. Solution for the problems that are faced by investors while investing in mutual
funds and equity market.

Table 4.16 Solutions for the Problem

Solution No. of Respondents Percentage
Proper guidelines should be provided 26 26
Less legal formalities 12 12
Less commission should be charged 6 6

64
Keeping track of investment made 36 36
More training and awareness camps by govt. 9 9
Measures to make the processes transparent. 4 4
Detailed analysis of investment made by 7 7
investors.
Total 100 100

Figure 4.12 Solutions for the Problem

65
Analysis & Interprtation
From the survey it was found that 36 percent of respondents have suggested to keep the
track records, 26 respondents was told to guidelines should be provided to investors an
only 4 % respondents told to measure to make the processess transparent.

66
 CHAPTER-5
FINDINGS &
SUGGESSTIONS

67
 FINDINGS OF THE STUDY

This is a great experience for me to analyze a comparative analysis of mutual funds vs.
equity share market an investors perspective.
After analyzing the comparative analysis of mutual funds vs. equity share market
following findings have emerged:
Among prevalent investment avenues majority of investors prefer to invest in
both equity share market as well as mutual funds as approximately 49 percent
investors prefer to invest in both avenues.
Respondents prefer longer time period as 43 percent investors stay invested for a
year.
Majority of investors was told that equity share market give more return as
compared to mutual funds..
Most of the people influenced by financial advisor as a source of reliability
The objective behind investment in equity share market is growth of capital as
34.04 percent investors agree to this and for mutual fund is the safety of capital as
approximately 26 percent people agree to this.
Mutual funds fetch moderate returns as compared to equity share market and
having a moderate risk.
Majority of people said that after abolition of entry load percentage of MF investors
will grow
Majority of investors have change their investment pattern from equity to mutual
funds as 57 percent agree to this. They have shifted their investment pattern from
equity to mutual funds.
Majority of respondents told that they take 2 to 5 years to make decision of
changing their investment pattern.
Maximum respondents flexibility is the factor that is responsible for the shifting
from equity to mutual funds and maximum people have change their investment
pattern from mutual funds to equity market because they have a lack of trust on the
ability of fund manager and high return.
Majority of respondents prefer mutual funds as well as equity share market for

68
 investment just because of tax benefits.
Maximum respondents prefer equity share market because it gives more returns as
compared to mutual funds as 49 percent respondents agree to this statement.
Most of the respondents told that they have less than 20 percent profit by making
investment in mutual funds and approximately 49 percent respondent ear a profit
more than 60 percent by making investment in equity share market.
Majority of respondents was faced a problem of lack of accurate information
while investing in mutual funds as 47 percent respondents agree to this statement and
49 percent respondents face problem of lack of accurate of information while making
investment in equity share market.
Majority of respondents suggest a solution for the problems proper guidelines
should be provide to the investors so that they will make investment easily in future.

69
 CONCLUSION OF THE STUDY
The Investors have various alternatives to invest their monies to earn higher returns and
to increase the value of their monies as against rising inflation. For that purpose, investors
should have adequate knowledge about the working of various investment instruments
along with all the pros and cons of investing in them. This research project helps the
reader to understand in detail about the mutual funds and equity share market to take the
best decisions for investment. The study makes a wide analysis of comparison of mutual
fund investment with Investment in equity market, Investment in Secondary markets. The
study also examines the historical background, growth and future prospects of Indian
mutual fund industry. Besides this, a brief introduction to market positions of various
Indian AMCs has been given. The study also reveals the perception of 100 sample
investors regarding their investment preference. For that purpose a questionnaire
containing open - ended and closed- ended questions has been prepared to know the
investors most preferred instrument of investment. The analysis and interpretation of the
questionnaire has led to the conclusion that investors prefer mutual funds as against
investment in equity market. The criteria for choosing this investment option is risk and
return trade- off. The study explores the investment behavior of Indian investors. They
invest their monies in different investment instruments and do not remain confined to one
or two options. The preference and ratio of investment may vary from one investor to the
other. Also all the 100 investors who are taken as sample for the study are aware about
the mutual funds and equity share market. This shows the awareness level of the Indian
investor. However, such a finding can have limitations of limited sample size of 100
investors who have been selected by convenient non-probability sampling. The study also
brings out the effect of age and income on the investment decision of the investor. People
belonging to middle income group prefer to get safe and secured returns on their minimal
investments, whereas people belonging to age group of 40 and above also want to have a
permanent source of income which comes through safe and secured investments. Thus,
the study gives an overview about the whole investment scenario in India.

70
 SUGGESSTIONS OF THE STUDY
The recommendations are the important part of any study. The following
recommendations were made after the study.
Whether investors are investing in mutual funds or in shares, the consideration should
be given to portfolio of investment in order to diversify the risk.
Investors should update himself/herself from the current market value of his/her
investments in order to be safe.
A prudent investor is one who initially analysis his/her needs and then search for the
various investment opportunities capable of fulfilling the objectives ascertained.
Detailed analysis of the fact sheets and terms and conditions before investing.
Past performance should be checked as regards returns of the financial instruments
before investing.
SEBI can also suggest investment portfolio to different kinds of investors according
to their risk appetite and investment objective.
Governments, both at state and regional levels should start such programs that may
educate investors properly about the working of Indian economy and its relation with
the global economy. This will help the investors of both urban areas and rural areas to
understand the right opportunities for them and also can understand how they can
make safe investment even in the face of rising inflation.
Apart from investment in the home country, Indian investors can diversify their
portfolio by investing in foreign countries. This will lessen the risk of investment in
home country in the times of rising inflation. Investors can invest in Equity shares.
Retail investors may subscribe to global equity-linked investments such as mutual
funds and capital protected equity linked notes, debt linked products or real estate
products. Indian investors can let the companys global fund managers manage their
investments more efficiently.

71
BIBLIOGRAPHY

72
 BIBLIOGRAPHY

Benson, G. (2009). Timing decisions and the behaviour of mutual fund systematic
risk. Journal of Finance, 18 (2), 569-597.
Ciccotello, C. and Grant, T. (2010). Equity fund size and growth: Implications for
performance and selection. Financial Services Review, 5(9), 5-31
Detzel, L. (2013). Determining a mutual funds equity class. Journal of Review of
Financial Studies 15(1), 199-221
Gupta, M. (2005). Mutual fund industry and its comparative performance. Journal of
Business Line, 15(3) 1407-1437
Heung, C. And Bong, L. (2011). The market demand curve for common stocks:
evidence from equity mutual fund. Flows Journal Of Business Line, 20(1), 125-150
Lee, K. (2013). Market structure and diversification of mutual funds. Journal of
financial markets, 6(4), 607-624.
Prather, L. and Middleton, K. (2013). Timing and selectivity of mutual fund
managers: An empirical test of the behavioural decision making theory. Journal of
Empirical Finance, 13(3), 249-273
Richard, A. (2011). Big fish in small ponds: The trading behaviours and price impact
of foreign investors in Asian emerging equity markets. Journal of Review of Financial
Studies 20(1) 125-150
Sarich, J. (2015). Competition and international equity returns: Some empirical tests
of turbulent arbitrage. Journal of Review of Financial Studies, 42(1), 5-31
Sharpe, W. (2014). Shares are a part of a business, mutual funds are cumulative
investment. The Economics Times, pp. 1A, 2A.

73
ANNEXURE

74
 QUESTIONNAIRE

I am pursuing MBA from Rayat Bahra Institute of Management, Hoshiarpur. I am conducting a

research on 'A Comparative analysis of mutual funds and equity share market An investors
perspective'. So I request you to spare few minutes from your busy schedule and fill this form. I
assure you that the information provided by you will be kept confidential.

Demographic Information: -
Name - ____________________________________________
Age - 15-25years 26-35years 36-45years
Above 45years
Address - ____________________________________________
Occupation - Student Business
Service Housewife
If any other (please specify) _________________________________

Contact No -____________________________________________

QUESTIONS
Q1. Where do you invest your savings?

(a) Mutual funds (b) Equity

(c) Both

Q2. What is your investment horizon during which you like to stay invested?

(a) Days (b) Weeks

(c) Months (d) Years

Q3.Which sector do gives to you more returns?

(a) Mutual fund (b) Share market

(c) Equal (e) Cant say

75
Q4. Kindly rank the following sources in order of reliability from 1-5 on which you rely before
making investment?

(a) Advertisements.

(b) Advice from tax consultants/CA.

(c) Recommendations from friends and relatives.

(d) Financial advisor.

(e) News papers/ Magazines

Q5.What is your objective behind investment in mutual funds and in equity shares?

(a) Safety of capital (b) Beating inflation

(c) Tax minimization (d) Liquidity

(e) Growth of capital (e) Retirement

(f) Others (Please specify)

Q6. Kindly rank the following factors from 1-8 that you consider/will consider before investing in
mutual funds and in equity.

Mutual fund Equity shares

(a) Financial position

(b) Current market position

(c) Goodwill

(d) Future prospects

(e) Risk

(f) Safety

(g) Tax benefits

(h) Capital appreciation

Q7. How have you changed your investment pattern in the recent past?

(a) From equity to mutual fund. (b) From mutual fund to equity.

(c) Change within equity market. (d) Change within mutual

fund market.

76
 (e) No change

Q8. How many years did/do you take to make decision of changing your investment pattern?

(a) Less than 1 year (b) 1-2 year

(c) 2-5 year (e) More than 5 years

Q9. What are the factors responsible for the shifting? (Tick all that are relevant)

Equity to Mutual funds Mutual funds to Equity

(a) More diversified investment

(b) High return

(c) More flexibility

(d) Tax saving benefits

(e) Secured returns

(f) Less operating cost

(g) Professional assistance

(h) Closely related to stock market

(i) More investors friendly

(j) Lack of trust on ability of

Fund Manager

(k) Any other (Please Specify)

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 Q10.What is the reason for making investment in mutual funds and in equity market?

(a) Safety (b) Tax Saving

(c) Capital appreciation (d) High return

(e) Liquidity (f) Minimization of risk.

(g) Any other (Please specify) ______________________________

Q11. From equity and mutual fund which one do you find better in terms of only returns?

(a) Equity shares (b) Mutual fund

(c) Both are same

Q12. Kindly rate the following statements on the Likerts scale from 1-5 where 5 Corresponds to
'strongly agree' & 1 correspond to 'strongly disagree'?

Statements Strongly Agree Neutral Disagree Strongly

Agree(5) (4) (3) (2) Disagree
(1)
13.1 Mutual fund movements depend upon
stock market movements.
13.2 Shares are preferred for investment
because of tax benefits.

13.3Mutual funds are beneficial for small

investors who have no knowledge about share
market.
13.4 Mutual funds gives better return than
Equity shares or Derivatives.
13.5 When there is fall in stock market Mutual
funds are least affected.
13.6 Only investors who have their own
business invest in equity share market.

13.7 Mutual funds hold a great share of Indian

stock market.
13.8 Whole money invested in share market are
in the hands of investors rather in mutual funds
entry load has been paid.

13.9 Mutual fund investors analyze funds by

considering stock indices.

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13.10 Investment in share market requires
considerable skill and expertise and carries the
risk of loss.

Q13. What is your average return percentage of investment in shares or mutual funds?

Mutual funds Equity shares

(a) Less than 20%

(b) Between 20-40%

(c) Between 40-60%

(d) Above 60%

Q14. What are the problems faced by investors while making investment in mutual funds and equity
shares?

Mutual funds Equity Shares

(a) Lack of accurate information.

(b) Documentation.

(c) Commission.

(d) Risk involved.

(e) Any other (Please Specify).

Q15. How do you think these problems can be removed and these services can be made better?

(a) Proper guidelines should be provided

(b) Less legal formalities

(c) Less commission should be charged

(d) Keeping track of investments made

(e) More training and awareness camps by Government.

(f) Measures to make the processes transparent.

(g) Detailed analyses of investment made by investors

(h) Any other (Please Specify)

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