CHAPTER 1

INTRODUCTION
INTRODUCTION

Mutual fund is the type of investment in which the investor’s money is pooled into various
investment portfolios in order to reduce risk. The pooled money is invested in both capital
market and money market. The earnings are distributed on the basis of number of units held
by the investors.

Mutual funds are easy to buy and sell. It can be either bought directly from the fund company
or through a third party.

This study is based on equity based mutual funds of three companies’ viz. HDFC, Reliance
and UTI.

This study mainly focuses on the growth of equity based mutual funds of the selected
companies on the basis of prices per unit and gain/loss percentages in the last five years and
to provide recommendations to the investors.

1.1 INDUSTRY PROFILE:

The primary bank originated in Asia was in the eighteenth century. With its assistance, the
final bank of Asian country that came into existence in 1986. After that Bank of geographical
region came into place, however each of these banks that were primary in nature does not
seem to be into existence now. In the year 1806, a bank was established and during the early
days it was named as Bank of Bengal and after that it was changed to the State Bank of India.
After some time, many foreign banks came into existence and started their operations in
Kolkata. Those banks were called as the Credit Lyonnais. After that one bank which finally
became the first bank fully owned by India and no other foreign players The Allahabad Bank
and it happened in the year of 1865. In the following years, Indian market expanded and there
were many banks established by the 1900s, and these banks were established in urban center
and each of those banks was shaped as the non-public possession type and these were totally
non-public banks. After that The Reserve Bank of India formally started to regulate all the
actions of these banks to maintain the smooth functioning of these banks in the year 1935.
After the independence banks of Republic of India were given full powers and were
additionally nationalized that resulted in having the more powers to the bank. The banks were
divided into two broader classes- Scheduled banks and Non-scheduled banks.
1.2 Liberalization

During early 1990s, the then Prime Minister of India and the then finance minister of
India jointly introduced a policy which was known as the liberalization and this policy helped
in abolishing the licensing system. This move of liberalization led to a quick growth in the
banking sector in India and many banks came into the market and also it led to the increase in
the Indian economy. Indian economy started growing very fast; reason being the contribution
of the banks of all sectors likes the government banks, private banks and the foreign banks.
The introduction of the foreign direct investment within the Indian industry was the major
boost to the economy which was possible only through liberalization, where the foreign
banks got authority to take a position within the Indian banks and have the choice rights and
it had a really smart impact within the Indian economy. The new banking policy changed the
sector of banking drastically and also the bankers had a different mindset till now and it
changed with the help of the introduction of these policies.

1.3 RBI AS A REGULATORY BODY

Reserve bank of India was established with a share capital of rupees five crores in 1935. The
recommendation for the institution of the bank was given by Hilton Young Commission.
During the beginning period of the bank the total amount of the share capital was divided into
small amount of shares and each share was having a face value of ₹100 each and were fully
owned by the private shareholders. The government of India was having the shares which
were having the nominal value of ₹220,000. In the year of 1949 the Reserve bank of India
was finally nationalized and all other banks had to start working under the rules framed by
the RBI.

1.4 MUTUAL FUNDS:

Mutual Funds are investment funds which attract investments in different financial
instruments with the objective of reducing risks and maximizing the returns for distributing to
the members. A Mutual Fund is a corporation’s interest to realize the deposits offered by the
investors and pay back profits on them after taking some administration fees. Mutual Funds
provide opportunities for lower income groups to invest in financial assets without any
difficulty. They mainly cater the individual investors who cannot manage portfolios that
provide income, growth and diversification opportunities.

Low risks will yield low returns and vice-versa. In recent trends of the market the retail
investors have lost their chances to invest in high return securities. On the other side people
started opting for portfolios where the stocking companies invest money on behalf of
investors and they can invest in different companies.

The primary benefit of mutual fund is its diversification. When the investor has many
benefits he can invest in the mutual funds and get great opportunities in the fund schemes that
provide good economies of scale. On the other hand there are negative aspects as well, that is
they have to pay more charges in the name of fees that may lead to denial of investments in
mutual funds.

1.5 CONCEPT:

Mutual fund are institutions/trusts which get money from the investors and then the same
amount of money is invested in the diversified instruments and those instruments are
financial instruments, where the main objective is to be away from high risks and to gain
more returns.

The major role of mutual fund is to offer the investors; even if the investors are having fewer
amounts they can invest. The most important need of this investment plan is to provide
opportunities to small investors where they can achieve growth and have regular income on
the investments and also can liquidate his assets at any time. The important thing is that
investors are getting diversification of the investment through mutual fund investment.

1.6 WHY TO CHOOSE MUTUAL FUNDS:

There are various categories of investments, among those categories there is one
investment called risk returns investment that usually happens when there is a correlation
between threats and gains. If the investor is ready to get high returns on investment then he
has to go for the high risk option for his investment because it is said that where there is a
high risk, the returns will also be high.

For example; if the investors are willing to deposit their money in the bank deposits, there has
to be a medium type of returns and also there will be low risk. But for the investor there are
many other opportunities where he can invest, he can invest in the capital tools and goods and
also in the bonds that give more returns on investment. If we compare both, the better option
for investment is the mutual fund because the returns are high and the risk is comparatively
less. That is why investors choose mutual funds as prior investment.

This is the reason why investors should choose mutual funds because the pooled funds are
not only invested in the debts but it is also invested in the stock companies where both the
institutions as well as the investors expect the high returns on the investment. It depends on
the corporation where they are putting the money in, whether there is low or high risk. If
there is high risk then proportionally the investors will receive high returns on their
investment. If there is low risk then the investors cannot expect high returns on the
investment.

1.7 ADVANTAGES OF MUTUAL FUNDS:

PORTFOLIO DIVERSENESS:

Mutual fund provides a platform for the investors having either less or huge amount, they can
enjoy the diverseness of the portfolio where they can invest in different securities and they
also can have earn good benefits.

LOW RISK:

Mutual funds help the investor to invest in multiple securities which lowers the risk as
compared to investing in a single security which can involve a lot of risk. As mutual funds
invest in more than one security the risk of investing in high risk securities gets compensated.

LESS COST OF TRANSACTION:

The company pays lesser amount of transaction that is made because of the economies of
scale and they have huge benefits on their investments. As compared to other schemes mutual
fund pays less amount of money on transactions and the mutual funds companies have to pay
fewer expenses.

LIQUIDATION:

The benefit for the investor in investing in mutual funds is that sometimes he cannot sell off
the shares very fast and very quickly when invested in separate securities but in the
mechanism of mutual funds the investor has more liquidation.
FLEXIBILITY:

Mutual funds are the most flexible type of investments available. There is a choice for the
investors to change their schemes from one to another. For example, investor can shift from
debt scheme to an equity scheme. Mostly in open ended schemes the investor can pay the
regular installments and can withdraw at regular periods so that it will be easy for them to
withdraw and even pay the investment installments.

1.8 DISADVANTAGES OF MUTUAL FUNDS:

COST INCURRED IN THE FUNDS CANNOT BE CONTROLLED BY INVESTORS:

In mutual funds the investors have to pay distribution expenses and charges related to the
investment. The investors have to pay these charges as per their value of the investment
according to whatever schemes they have taken. In this type of fund the investors have to pay
some charges where they can have the security of having the mutual fund scheme and after
paying the charges then the investors investment will be clear and away from any fraud and
even the investor will be updated about the scheme which he has taken.

NO PERSONALIZED PORTFOLIO:

The fund manager takes the decisions about the portfolio securities where the funds can be
invested in and not the investors. Investor doesn’t have rights to interrupt the fund manager
while the fund manager is going to take any prompt decision or any proper action towards the
fund schemes. The investors might feel demotivated about the investment plan they have
opted for but they can’t interfere in making decisions.

VERY COMPLEX TO SELECT THE BEST:

In mutual funds it is very complex to select the best scheme which would give higher returns.
The investors think from many perspectives because every investor has a different mindset.
Where one investor takes a scheme as per the budget and others are not worried about the
budget, they may look at the return on investment and the associated risk.
1.9 CATEGORIES OF MUTUAL FUNDS:

A. BY STRUCTURE:

In this type of mutual fund there are three types of fund schemes that are discussed below:

1. OPEN ENDED FUNDS:

Mutual funds in which there are no restrictions on the value of the shares when the funds can
be issued are known as open ended funds. Most of the investors are inclined towards open
ended schemes as it provides convenience and the flexibility to the investors and it is very
easy to invest in the open fund. It is a fund that issues huge amount of shares and bonds.

An open fund scheme provides the best platform to the investors where there are no
restrictions so that they can pool the money into diversified areas or portfolio and investors
can buy the managed portfolio. To invest in the open fund scheme the investors doesn’t need
the lot of money to enter in the field of open fund, the mutual fund institutions are making it
very easy for the investors to access and to invest in the fund.

2. CLOSE ENDED FUNDS:

This is the second scheme that comes under the structure model where the funds are collected
only once then the pooling of the money is done. This means that investors have to invest
once and then they have to wait for other offers after certain period of time. This scheme has
a maturity period of 3 to 15 years. The reserve will be opened for the specific period of time.
In this scheme there is initial public offer and that time the investors can come and put the
money in the particular scheme. After investing the money then the investor will be able or to
the investor has the authority to buy or even he can sell the units whichever they have
purchased, and all those units should be listed in the stock market.

All the close funds are listed in the stock exchange and it all will be sold and bought from the
same particular stock exchange.

.
B. BY NATURE:

EQUITY FUND:

This is the type of funds where investors can spend most of their securities that they are
holding and these are the funds where the schemes will be different from one scheme from
another and the fund Manager has their own outlook on the new stocks. There is sub
classification of the equity funds and that are actually based on the investment objectives, and
these are as follows:

 There are diversification in this type of equity fund

 Moderate capitalization funds
 There is a specification in some sector funds
 Tax saving funds are also there

Equity funds are meant for a longer period and there will be the ratio between the risk and the
return on the investment, because wherever the risk will be more as the same they will get the
returns on their investments. These investments should be considered for a minimum of 3-5
years of time.

FUNDS THAT ARE GILT:

GILT is the collection of securities dispensed by the Government. These types of securities
are called Indian government debt papers. These are no threat funds. They are away from the
risks and these funds are associated with the interest. These schemes are much safer than the
other schemes because these funds are backed by the Government of India.

EARNINGS FUNDS:

Investors have many options while choosing the best scheme for them and that time they
have to see the scheme in two perspectives, how much risk is involved in this particular
scheme and how much they can benefit on the investment. But they have other options also
like investing the large part of the investment in debt instruments where they can buy the
bonds, securities that are issued by the Government, and corporate debentures.

BALANCED FUNDS:

Balanced fund is the combination of both equity and debt funds. The investors are investing
in both the securities as well as in equities, which have the predefined financial objectives.
The main purpose of these schemes is to give best out of the both domestic as well
international trade. There are two domains in this scheme: equity and debt, where equity
provides the growth to the investors on their investments and the debt provides benefit to the
investor in the form of stability in their returns. In this type of scheme the investors put more
efforts to spread the risk and to put that risk into diverse investments.

BY INVESTMENT STRUCTURE:

GROWING SCHEMES:

The main benefit of this scheme is that it provides the investors to increase their capital and
to grow the capital from moderate to long term. These are the schemes which are mostly
investing a major part of the investment in the equities so that it will have a great liquidity,
and they should be willing to bear the risk in order to obtain the financial objectives so that it
will have the appreciation for the capital.

PAY SCHEMES:

This scheme is commonly known as debt instrument scheme. The key element of this scheme
is to provide investors something better and in regular intervals. This scheme provides regular
income to the investors and it also allows the investors to have fixed and unchanging income.
This scheme mostly finance in the areas of fixed income that can be bonds, debentures etc.
There is a limit for the appreciation of the capital.

CASH MARKET SCHEMES:

This scheme provides better aim to the investors where they have better liquidity to their
units and the investors can preserve their capital so that they achieve growth and capital
appreciation.

These schemes are more preferable and these schemes mostly invest in the short term funds
and instruments so that the investor’s trust will be on the safer side because dealing with the
short term investments is easy and safe. All the short term instruments can be transformed
into the cash with ease and the investor has to think before he can take the decision about
which scheme he is choosing.
OTHER SCHEMES:

TAX SAVING SCHEME:

Tax saving scheme is basically a scheme where the investors get tax benefit. Investor can
make some profits out of it and the funds will be safe from the defaults or any other risks.
The investors get tax rebates where all the laws and the rules should be regulated and
prescribed from time to time. There are some sections and subsections where some of the
savings are linked to the ELSS.

1.10. RECENT TRENDS IN THE MUTUAL FUND INVESTMENT:

There are several trends in the mutual fund investment. Mutual and ETF`s funds are majorly
known for the investment sentiments where the individual investors can invest their money
and the trusts can pool the same money into different institutions so that the investors can get
the revenues and they can have a regular income. In mutual funds and ETF`s the investor is
getting a good benefit where they can the diversification for the investments.

1. INVESTING MORE IN GOLD:

Investors tend to invest in gold rather than in mutual funds because it acts as a safe and secure
investment. The investors always look for gains and where the risk will be less the investor
can invest in the same, as the prices of gold can go up within days, it helps in the high
growth.

2. LISTED FUNDS ARE GROWING AND HAVE GOOD POPULARITY:

Sometimes these funds grow very rapidly and this trend was continued till 2016. Investor can
continue in the ultra-schemes which are very low cost schemes and come under the indexing.

3. INVESTORS CAN SHIFT FROM LESS TO HIGH YIELDS:

Investors can yield high returns on their investments so those who are having the less return
schemes are shifting to high yield schemes. This provides an investor a better option to
change from one scheme to another scheme.

This is the trend where the trusts and individual investor can have bad sign problems and
there are some uncertainties where the mutual fund sector has been riddled.
4. INCOMES THAT ARE SAFE AND SECURE FOR THE INVESTORS:

Likewise the investors have shifted to invest in the gold and some of the Government
securities. In the year 2016 the investors added some holdings in taxable and some in the
bonds. In the year 2016, the very first two months of the year the investors have added more
value to some fixed incomes and the amount was around $16 billion.

1.11 RELIANCE MUTUAL FUND

Reliance Mutual Fund (RMF) started out as a consortium in 1986 below Indian Trusts Act
1882. RMF is subsidized with the aid of Reliance Capital Ltd. It was registered as Reliance
Capital Mutual Fund on June 30, 1995 which again changed on March 11, 2004. Reliance
Mutual Fund was shaped to launch diverse schemes under which units are issued to people
for contributing to the diligent marketplace and to help buyers to spend money on diverse
securities.

Reliance Mutual Fund schemes are controlled by way of Reliance Capital Asset Management
Limited, a subsidiary of Reliance Capital Limited, which holds 93.37% of paid up budget of
RCAM, the rest is held by using minority shareholders.
THE MAIN OBJECTIVES OF THE TRUST:
 To perform the action of a Mutual Fund as permitted via law and articulate and expand
diverse schemes of savings and investments for citizens in India and foreign places and
additionally shield liquidity of investments for the Unit holders;
 To provide funds to help the Unit holders earn better returns on their savings and
 To take such steps as may be necessary from time to time to realize the
effects without any limitation.

1.12. UNIT TRUST OF INDIA MUTUAL FUND

Unit Trust of India was created by the UTI act passed in the Indian parliament in 1963. For
more than twenty years it remained the only choice for investment in capital markets in India.
ITI maintained its apex position till 2001.

UTI Mutual Fund was started as a SEBI registered mutual fund on 1st February 2003. UTI
Mutual Fund is one of the biggest mutual funds in India with about 10 million accounts under
230 schemes as on 30th September 2017. Its network is spread all over the country with over
48000 certified financial advisors and 150 financial centers.
1.13 HDFC MUTUAL FUNDS

HDFC is a leading bank in India’s banking context and its mutual funds are also one of the
largest in India and it has been a long time when the HDFC bank has started mutual fund
schemes and currently now it has shown a considerate growth in the country. It is currently
one of the most known mutual funds in the market.
HDFC Bank's mission is to be a best Indian Bank. The objective is to form strong customer
franchises across diverse businesses so as to be the preferred provider of banking services for
target retail and wholesale customer segments, and to achieve high growth in profitability,
consistent with the bank's risk desire. The bank is committed to sustain the highest level of
ethical standards, professional integrity, corporate governance and regulatory compliance.
In 2017 the bank networks has been increased and the bank has got other distribution
webbing, till 30th June of 2017 the bank had around 4800 branches and 12500 (ATM`S) in
different cities and in various towns. The bank has also positioned around four lack fifty
thousand “point of sale” terminals .In the year 2017, the bank has provided two lakh thirty
five thousand seven hundred debits cards to the customers and it has also issued around
85000 credit cards. The bank has got a good strategy to achieve great excellence in the field
of banking and the bank is doing well at it because it has some four basic fundamentals to
sustain in the field of banking and always being on the top in private sector banking and those
fundamentals are:
1. Majorly focusing on customers,
2. Achieving excellence in operations,
3. Leading in the field of financial products,
4. And the people who are connected with the bank.
The bank believes that the success comes from the only two things, the standard of the people
and the efforts that the people are putting to achieve excellence in the banking sector. HDFC
is performing some continuous things in the people hiring and creating a relationship to them
so that they will get motivated towards the company and the company will also retain the
people those who are putting great efforts towards the company.