FACTORS AFFECTING INVESTORS PREFERENCE FOR MUTUAL FUNDS IN INDIA

FACTORS AFFECTING INVESTORS PREFERENCE FOR MUTUAL FUNDS IN INDIA

SUMMER INTERNSHIP PROGRAMME INTERIM REPORT ON FACTORS AFFECTING INVESTORS PREFERENCE FOR MUTUAL FUNDS IN INDIA

Submitted by:

NILAMADHAV SAMAL 08BS0001995 1


CONTENTS Abstract Objective Limitation Company profile Introduction Credit Rating Products and services Mahindra Fin Smart : Investment Advisory Services Investments Investment Needs Choosing the Right Investment Option Investment Options in India Mutual Funds Organization Regulatory Authorities Types Of Mutual Funds Advantages / Disadvantages of Mutual Funds History Analysis of a fund/scheme. Further Scope of StudyAnalysis of a fund/scheme with examples Comparative analysis of different investment Options

3 4 5 6 6 6 6 7 8 8 10 12 16 18 20 21 26 28 31

Market Survey Research Methodology Sample Selection Demographic analysis of Investment patterns Further Scope of the study Factors(Intrinsic and Environmental) affecting selection of a scheme Further Scope of Study Influence of Product Qualities on Scheme Selection Further Scope of Study Influence of Fund Sponsor Qualities on Scheme Selection Influence of Investor Services on Scheme Selection Suggestions Conclusion Annexure I References

34 34 36 37 42 43 44 45 47

48 52

2


ABSTRACT The project contains the brief description of the mutual fund industry in general. It also includes the study and comparison of other investment products available in the market like Insurance plans, ULIP, Mutual Funds, Savings account, Provident funds, Postal savings and Fixed Deposits and Stocks available in the market. A survey was conducted to gather primary data to judge the factors that influence investors before they invest in any of the investment tools and thus the first part of the paper scrutinizes the investor’s perception and analyzes the relation between the features of the products and the investors’ requirements. With this back ground an attempt has been made in this paper to categorize investors based on various demographic factors such as age, sex, income level and occupation. The second part of the paper deals exclusively in Mutual Funds. It is widely believed that MF is a retail product designed to target small investors, salaried people and others who are intimidated by the stock market but, nevertheless, like to reap the benefits of stock market investing. At the retail level, investors are unique and are a highly heterogeneous group. Hence, designing products that are customer tailored to the different needs is important. Currently (as on 23/3/2009) there are more than 2500 schemes with varied objectives and AMCs are competing against each other by launching new products or repositioning old ones. MF industry today is facing competition not only from within the industry but also from other financial products that provide many of the same economic functions as mutual funds but are not strictly MFs. Thus the second part of the paper attempts to study the factors influencing the fund/scheme selection behavior of Retail Investors who invest in Mutual funds.

3


OBJECTIVE ·

To categorize investors as being inclined towards investment products based on certain characteristic such as sex, age, academic qualifications, marital status, occupation, annual income etc.

·

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

·

This paper shall also look into the brief history of mutual funds industry in India; try to classify them according to the various schemes and products offered. It shall also provide a comparative analysis between different types of mutual funds in India and between mutual funds and other investment products.

4


LIMITATIONS i) Sample size was limited to 100 investors who have invested through Mahindra only. The sample size may not adequately represent the national market.

ii) This study shall not been conducted over an extended period of time considering both market ups and downs. The market state has a significant influence on the buying patterns and preferences of investors.. The study cannot capture such situations.

iii) The study shall take into account the preferences of investors who have invested in schemes offered by the distributor services of Mahindra only. As such there will be a element of biasness in the study.

5


COMPANY PROFILE MAHINDRA AND MAHINDRA FINANCIAL SERVICES LTD. Mahindra and Mahindra Financial Services Limited is one of India’s leading non-banking finance companies focused on the rural and semi-urban sector providing finance for utility vehicles, tractors and cars with largest network of branches covering these areas. It is a subsidiary of M&M, a leading tractor and UV manufacturer with over 60 years experience in the Indian market. The Company was incorporated on 1st January, 1991 as Maxi Motors Financial Services Limited and received Certificate of Commencement of Business on 19th February, 1991. The name has been changed to Mahindra & Mahindra Financial Services Limited and Fresh Certificate of Incorporation was received on 3rd November, 1992. Credit Rating: •

Credit Rating Information Services Limited (CRISIL) has reviewed the performance of the Company and reaffirms FAA for Fixed Deposit program and AA for Long term Debt and P1+ for Short term Debt.

•

Company has also been awarded “Ind AA+” rating by Duff & Phelps (DCR) for the Rs.50 crores Long Term Non- Convertible Debentures.

Products & Services •

It provides financial loans to tractors, utility vehicles, light commercial vehicles, cars, two wheelers, three-wheelers and used vehicles.

•

Its services include Mutual Fund distributions and financial advisory services also.

6


•

In May 2004, as a supplement to its lending business it started an insurance broking business through its wholly owned subsidiary, Mahindra Insurance Brokers Limited (MIBL). Mahindra Finance has already started distributing insurance products in rural and semi urban India through its subsidiary Mahindra Insurance Brokers Limited.

•

It has also recently commenced its mutual fund distribution business and are exploring opportunities of entering housing loans and personal loans in rural and semi urban markets.

•

It believes that the growth of their interactive, people-driven business model

depends

on

the

building

of

strong,

long-term

personal

relationships. This coupled with superior knowledge of rural markets, and the ability to tailor products, positions the company well to continue to meet rural and semi-urban credit needs and provide competitive, flexible and speedy lending services. MAHINDRA

FINANCE

-

FINSMART:

INVESTMENT

ADVISORY

SERVICES •

Now Mahindra finance has started its new venture named Mahindra Finance- FinSmart which is an investment advisory services provider.

•

It provides financial planning solutions to customers by which they can get all those things which they want to achieve.

•

And as in today’s scenario Mutual Funds is the best available investment option so it deals in MFs. Its planners tell people for how long and how much money they have to invest in MFs.

•

In just over three years since its launch, it have strongly cemented its position as a leading player in industry based on its pioneering strategy i.e., “Where your Investment Matters and not its size”. 7


INVESTMENTS Savings form an important part of the economy of any nation. With the savings invested in various options available to the people, the money acts as the driver for growth of the country. Indian financial scene too presents a plethora of avenues to the investors. Though certainly not the best or deepest of markets in the world, it has reasonable options for an ordinary man to invest his savings. An investment can be described as perfect if it satisfies all the needs of all investors. So, the starting point in searching for the perfect investment would be to examine investor needs. If all those needs are met by the investment, then that investment can be termed the perfect investment. Most investors and advisors spend a great deal of time understanding the merits of the thousands of investments available in India. Little time, however, is spent understanding the needs of the investor and ensuring that the most appropriate investments are selected for him.

The Investment Needs of an Investor By and large, most investors have eight common needs from their investments: 1. Security of Original Capital; 2. Wealth Accumulation; 3. Comfort Factor; 4. Tax Efficiency; 5. Life Cover; 6. Income; 7. Simplicity; 8. Ease of Withdrawal; 9. Communication. ·

Security of original capital: The chance of losing some capital has been a primary need. This is perhaps the strongest need among investors in India, who have suffered regularly due to failures of the financial system.

8


·

Wealth accumulation: This is largely a factor of investment performance, including both short-term performance of an investment and long-term performance of a portfolio. Wealth accumulation is the ultimate measure of the success of an investment decision.

·

Comfort factor: This refers to the peace of mind associated with an investment. Avoiding discomfort is probably a greater need than receiving comfort. Reputation plays an important part in delivering the comfort factor.

·

Tax efficiency: Legitimate reduction in the amount of tax payable is an important part of the Indian psyche. Every rupee saved in taxes goes towards wealth accumulation.

·

Life Cover: Many investors look for investments that offer good return with adequate life cover to manage the situations in case of any eventualities.

·

Income: This refers to money distributed at intervals by an investment, which are usually used by the investor for meeting regular expenses. Income needs tend to be fairly constant because they are related to lifestyle and are well understood by investors.

·

Simplicity: Investment instruments are complex, but investors need to understand what is being done with their money. A planner should also deliver simplicity to investors.

·

Ease of withdrawal: This refers to the ability to invest long term but withdraw funds when desired. This is strongly linked to a sense of

9


ownership. It is normally triggered by a need to spend capital, change investments or cater to changes in other needs. Access to a long-term investment at short notice can only be had at a substantial cost. ·

Communication: This refers to informing and educating investors about the purpose and progress of their investments. The need to communicate increases when investments are threatened.

·

Security of original capital is more important when performance falls.

·

Performance is more important when investments are performing well.

·

Failures engender a desire for an increase in the comfort factor.

Perfect investment would have been achieved if all the above-mentioned needs had been met to satisfaction. But there is always a trade-off involved in making investments. As long as the investment strategy matches the needs of investor according to the priority assigned to them, he should be happy. The Ideal Investment strategy should be a customized one for each investor depending on his risk-return profile, his satisfaction level, his income, and his expectations. Accurate planning gives accurate results. And for that there must be an efficient and trustworthy roadmap to achieve the ultimate goal of wealth maximization. Choosing the Right Investment Options After understanding the concept of investment, the investors would like to know how to go about the task of investment, how much to invest at any 10


moment and when to buy or sell the securities, This depends on investment process as investment policy, investment analysis, valuation of securities, portfolio construction and portfolio evaluation and revision. Every investor tries to derive maximum economic advantage from his investment activity. For evaluating an investment avenues are based upon the rate of return, risk and uncertainty, capital appreciation, marketability, tax advantage and convenience of investment. The following Table should give the clear picture relating to the investors’ investment decisions in various financial market instruments. The choice of the best investment options will depend on personal circumstances as well as general market conditions. For example, a good investment for a long-term retirement plan may not be a good investment for higher education expenses. In most cases, the right investment is a balance of three things: Liquidity, Safety and Return.

11


Investment Options in India

Fixed Deposits – They cover the fixed deposits of varied tenors offered by the commercial banks and other non-banking financial institutions. These are generally a low risk prepositions as the commercial banks are believed to return the amount due without default. By and large these FDs are the preferred choice of risk-averse Indian investors who rate safety of capital & ease of investment above all parameters. Largely, these investments earn a marginal rate of return of 6-8% per annum.

12


Government Bonds – The Central and State Governments raise money from the market through a variety of Small Saving Schemes like national saving certificates, Kisan Vikas Patra, Post Office Deposits, Provident Funds, etc. These schemes are risk free as the government does not default in payments. But the interest rates offered by them are in the range of 7% 9%. Money-back insurance - Insurance in India is mostly sold and bought as investment products. They are preferred because of their add-on benefits like financial life-cover, tax-savings and satisfactory returns. Even if one does not

manage to save money and invest

regularly in financial

instruments, with insurance, the policyholder has no choice. If he does not pay his premiums on time, his insurance cover will lapse. Money-back Insurance schemes are used as investment avenues as they offer partial cash-back at certain intervals. This money can be utilized for children’s education, marriage, etc. Endowment Insurance – These policies are term policies. Investors have to pay the premiums for a particular term, and at maturity the accrued bonus and other benefits are returned to the policyholder if he survives at maturity. Bullion Market – Precious metals like gold and silver had been a safe heaven for Indian investors since ages. Besides jewellery these metals are used for investment purposes also. Since last 1 year, both Gold and Silver have highly appreciated in value both in the domestic as well as the international markets. In addition to its attributes as a store of value, the case for investing in gold revolves around the role it can play as a portfolio diversifier.

13


Stock Market – Indian stock markets particularly the BSE and the NSE, had been a preferred destination not only for the Indian investors but also for the Foreign investors.. Although Indian Markets had been through tough times due to various scams, but history shows that they recovered very fast. Many types of scrip had been value creators for the investors. People have earned fortunes from the stock markets, but there are people who have lost everything due to incorrect timings or selection of fundamentally weak companies. Real Estate- Returns are almost guaranteed because property values are always on the rise due to a growing world population. Residential real estate is more than just an investment. There are more ways than ever before to profit from real estate investment. Mutual Funds - There is a collection of investors in Mutual funds that have professional fund managers that invest in the stock market collectively on behalf of investors. Mutual funds offer a better route to investing in equities for lay investors. A mutual fund acts like a professional fund manager, investing the money and passing the ret urns to its investors. All it deducts is a management fee and its expenses, which are declared in its offer document. Unit Linked Insurance Plans - ULIPs are remarkably alike to mutual funds in terms of their structure and functioning; premium payments made are converted into units and a net asset value (NAV) is declared for the same. In traditional insurance products, the sum assured is the corner stone; in ULIPs premium payments is the key component.

14


MUTUAL FUNDS INTRODUCTION Mutual Funds over the years have gained immensely in their popularity. Apart from the many advantages that investing in mutual funds provide like diversification, professional management, the ease of investment process has proved to be a major enabling factor. However, with the introduction of innovative products, the world of mutual funds nowadays has a lot to offer to its investors. With the introduction of diverse options, investors needs to choose a mutual fund that meets his risk acceptance and his risk capacity levels and has similar investment objectives as the investor. With the plethora of schemes available in the Indian markets, an investors needs to evaluate and consider various factors before making an investment decision. Since not everyone has the time or inclination to invest and do the analysis himself, the job is best left to a professional. Since Indian economy is no more a closed market, and has started integrating with the world markets, external factors which are complex in nature affect us too. Factors such as an increase in short-term US interest rates, the hike in crude prices, or any major happening in Asian market have a deep impact on the Indian stock market. Although it is not possible for an individual investor to understand Indian companies and investing in such an environment, the process can become fairly time consuming. Mutual funds (whose fund managers are paid to understand these issues and whose Asset Management Company invests in research) provide an option of investing without getting lost in the complexities. Most importantly, mutual funds provide risk diversification: diversification of a portfolio is amongst the primary tenets of portfolio structuring, and a necessary one to reduce the level of risk assumed by the portfolio holder. Most of the investors are not necessarily well qualified to apply the theories of portfolio structuring to their holdings and hence would be better off leaving that to a professional. Mutual funds represent one such option.

Definition- 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 15


other securities. The income earned through these investments and the capital appreciation realised 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:

Mutual Fund Operation Flow Chart

The flow chart below describes broadly the working of a mutual fund: Many Investors with common financial objectives pool their money

Investors on a proportionate basis, get mutual fund units for the sum contributed to the pool

The money collected from the investors is invested into shares, debentures and other securities by fund managers.

The fund manager realizes gain or losses, and collect dividends or interest income

Any capital gain or loss from such investors are passed onto the investors in the proportion of number of units held by them.

16


ORGANISATION OF A MUTUAL FUND There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund

Mutual funds Mutual fund is vehicle that facilitates a number of investors to pool their money and have it jointly managed by a professional money manager Sponsor Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. The Sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund. Trustee Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996. Asset Management Company (AMC) The AMC is appointed by the Trustee as the Investment Manager of the Mutual Fund. At least 50% of the directors of the AMC are independent 17


directors who are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 crores at all times. Transfer Agent The AMC if so authorised by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form, redemption requests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records. Terms associated with a Mutual Fund Net Asset Value (NAV) - Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date. Sale Price- Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load. Repurchase Price- Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price. Redemption Price- Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related. Repurchase or ‘Back-end’ Load / Exit load - Is a charge collected by a scheme when it buys back the units from the unit holders. Entry load- Entry load is the commission that an investor has to pay while purchasing units of a mutual fund. This is a certain percentage that the mutual fund charges to meet its expenses. Credit Rating- Credit ratings measure a borrower’s creditworthiness and helps in comparison of credit quality, this is true within a country and also

18


across countries. Issuer credit rating measures the creditworthiness of the borrower including its capacity and willingness to meet financial needs.

Regulatory Authorities To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. MF either promoted by public or by private sector entities including one promoted by foreign entities is governed by these Regulations. SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody. According to SEBI Regulations, two thirds of the directors of Trustee Company or board of trustees must be independent. The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. Its objective is to increase public awareness of the mutual fund industry. AMFI also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation, disclosure, transparency etc.

19


TYPES OF MUTUAL FUND SCHEMES

BY STRUCTURE 1. Open - Ended Schemes: An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. 2. Close - Ended Schemes: A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the 20


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. 3. Interval Schemes: Interval Schemes are that scheme, which combines the features of openended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.

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

21


The risk return trade-off indicates that if investor is willing to take higher risk then correspondingly he can expect higher returns and vise versa if he pertains to lower risk instruments, which would be satisfied by lower returns. For example, if an investors opt for bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest in capital protected funds and the profit-bonds that give out more return which is slightly higher as compared to the bank deposits but the risk involved also increases in the same proportion. Thus investors choose mutual funds as their primary means of investing, as Mutual funds provide professional management, diversification, convenience and liquidity. That doesn’t mean mutual fund investments risk free. This is because the money that is pooled in are not invested only in debts funds which are less riskier but are also invested in the stock markets which involves a higher risk but can expect higher returns. Hedge fund involves a very high risk since it is mostly traded in the derivatives market which is considered very volatile.

BY NATURE 1. Equity fund: These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the

22


fund manager’s outlook on different stocks. The Equity Funds are subclassified depending upon their investment objective, as follows: · · · ·

Diversified Equity Funds. Mid-Cap Funds. Sector Specific Funds. Tax Savings Funds (ELSS). Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix.

2. Debt funds: The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as: Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government. Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities. They provide a fixed return over each period of time. 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 shortterm 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

23


schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds. 3. Balanced funds : As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns.

High Risk Equit Funds, MIPs Funds

MEDIUM RISK Balanced Funds

LOW RISK Debt Funds, Gilt funds, Income Funds, STPs, Liqiud Funds

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

24


Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution. If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.

Advantages of Investing Mutual Funds : 1. Professional Management - The basic advantage of funds is that, they are professional managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments. The professional fund managers who supervise fund’s portfolio take desirable decisions viz., what scripts are to be bought, what investments are to be sold and more appropriate decisions 2. Diversification of Risk - Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. 3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors. 4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want. Mutual funds units can either be sold in the share market as SEBI has made it obligatory for closedended schemes to list themselves on stock exchanges. For open-ended schemes investors can always approach the fund for repurchase at net asset value (NAV) of the scheme. Such repurchase price and NAV is advertised in newspaper for the convenience of investors as to timings of such buy and sell. They have extensive research facilities at their disposal, can spend full time to investigate and can give the fund a constant supervision.

25


5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis. 6 Safety of Investments-Besides depending on the expert supervision of fund managers, the legislation in a country (like SEBI in India) also provides for the safety of investments. Mutual funds have to broadly follow the laid down provisions for their regulations, SEBI acts as a watchdog and attempts whole heatedly to safeguard investor’s interests. 7. Tax Shelter: Depending on the scheme of mutual funds, tax shelter is also available. As per the Union Budget-2003, income earned through dividends from mutual funds is 100% tax-free at the hands of the investors. Close ended schemes ELSS schemes with a minimum of 3 years lock in period also provide tax exemption to the investor. Long term Capital gains are also exempted from tax for equity funds. 9. The concept of Systematic Investment plan and Rupee cost averaging- Unlike other equity linked product and shares or stocks Mutual funds provide the added benefit of Systematic Investment plan. Here the money may be invested over a longer horizon of time in equal installments. Our natural instinct might be to stop investing if the price starts to drop—but history suggests that the best time to invest may be when you are getting good value. Rupee-cost averaging can be an effective strategy with funds or stocks that can have sharp ups and downs, because it gives you more opportunities to purchase shares less expensively. The benefit of this approach is that, over time, you may reduce the risk of having bought shares when their cost was highest.

Disadvantages of Investing Mutual Funds: 1. Professional Management- Some funds don’t perform as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor himself, for picking up stocks. 2. Costs – The biggest source of AMC income is generally from the entry & exit load which they charge from investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon. 26


3. Dilution - Because funds have small holdings across different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. 4. Taxes - when making decisions, fund managers don't consider investor’s personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

HISTORY 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 the. the history of mutual funds in india can be broadly divided into four distinct phases

First phase – 1964-87 Unit trust of India (uti) was established on 1963 by an act of parliament. it was set up by the reserve bank of india and functioned under the regulatory and administrative control of the reserve bank of india. in 1978 uti was delinked 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.

27


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) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. also, 1993 was the year in which the first mutual fund regulations came into being, under which all mutual funds, except uti were to be registered and governed. the erstwhile kothari pioneer (now merged with franklin templeton) was the first private sector mutual fund registered in july 1993. The 1993 sebi (mutual fund) regulations were substituted by a more comprehensive and revised mutual fund regulations in 1996. the industry now functions under the sebi (mutual fund) regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of rs. 121,805crores. The unit trust of india with rs.44, 541 crores of assets under management was way ahead of other mutual funds.

Fourth phase – since February 2003 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 specified undertaking of unit trust of india, functioning under an administrator and under the rules framed by government of india and does not come under the purview of the mutual fund regulations. The second is the uti mutual fund ltd, sponsored by sbi, pnb, bob and lic. it is registered with sebi and functions under the mutual fund regulations. with the bifurcation of the erstwhile uti which had in march 2000 more than rs.76,000 crores of assets under management and with the setting up of a uti mutual fund, conforming to the sebi mutual fund regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and 28


growth. as at the end of September, 2004, there were 29 funds, which manage assets of rs.153108 crores under 421 schemes.

The graph indicates the growth of assets over the years

29


Analysis Mutual funds also carry a risk profile with them. Some of the tools available to assess a scheme’s riskiness areBeta This common measure compares a mutual fund's volatility with that of a benchmark and is supposed to give some sense of how far you can expect a fund to fall when the market takes a dive, or how high it might climb if the bull is running hard. A fund with a beta greater than 1 is considered more volatile than the market; less than 1 means less volatile. So say your fund gets a beta of 1.15 -- it has a history of fluctuating 15% more than the benchmark If the market is up, the fund should outperform by 15%. If the market heads lower, the fund should fall by 15% more. But beta, though a useful guide, is far from perfect, especially when used as a proxy for "risk." The problem here, as with many risk measures, is the benchmark. The benchmark has to be a correct measure of comparison only then will the beta hold any indicative value. Alpha Alpha was designed to take beta one step further. It looks at the relationship between a fund's historical beta and its current performance, or the difference between the return beta would lead you to expect and the return a fund actually gets. An alpha of 0 simply means that the fund did as well as expected, considering the risks it took. So if that fund with the beta of 1.15 beat the market by 15% (or underperformed it by 15% when the market was down), it would have a 0 alpha. If your fund has a positive alpha, that means it returned more than its beta predicted. A negative alpha means it returned less. The trouble with alpha is that it's only as good as its beta. If the benchmark isn't appropriate to a fund in deriving its beta, then alpha, too, will be imprecise.

Standard Deviation Standard deviation is applied to the annual rate of return of an investment to measure the investment's volatility. Standard deviation is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility. Standard deviation is a statistical measurement that sheds light on historical volatility. For example, a volatile stock will have a high standard deviation 30


while the deviation of a stable blue chip stock will be lower. A large dispersion tells us how much the return on the fund is deviating from the expected normal returns.

Sharpe Ratio The Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a result of excess risk. This measurement is very useful because although one portfolio or fund can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been.

Treynor’s performance index : A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless investment per each unit of market risks. In other words, the Treynor ratio is a risk-adjusted measure of return based on systematic risk. It is similar to the Sharpe ratio, with the difference being that the Treynor ratio uses beta as the measurement of volatility. :

æR - R ö ç P f ÷ø è Treynor = b P Where: Ti = Treynor’s performance index 31


Rp = Portfolio’s actual return during a specified time period Rf = Risk-free rate of return during the same period βp = beta of the portfolio Whenever Rp> Rf and βp > 0 a larger T value means a better portfolio for all investors regardless of their individual risk preferences. In two cases we may have a negative T value: when Rp < Rf or when βp < 0. If T is negative because Rp < Rf, we judge the portfolio performance as very poor. However, if the negativity of T comes from a negative beta, fund’s performance is superb. Finally when Rp- Rf, and βp are both negative, T will be positive, but in order to qualify the fund’s performance as good or bad we should see whether Rp is above or below the security market line.

FURTHER SCOPE OF THE STUDY The study will further try to1. Analyze a few fund/schemes. 2. Comparative analysis of different investment Options with Mutual Funds

32


MARKET SURVEY INTRODUCTION In financial markets, “expectations” of the investors play a vital role. They influence the price of the securities; the volume traded and determines quite a lot of things in actual practice. These expectations’ of the investors are influenced by their “perception” and humans generally relate perception to action. The objective of the survey was to categorize investors as being inclined towards investment products based on certain characteristic such as sex, age, occupation, annual income etc. In addition the time horizon of investment and the the real need/purpose of investment were studied and categorized based on the above demographic factors. It was also intended to examine the different intrinsic factors of a mutual fund scheme and different environmental forces that motivate a investor to choose a particular mutual fund scheme. RESEARCH METHODOLOGY DESIGNING A QUESTIONAIRE To understand the savings avenue preference, scheme preference, time horizon for investment and objectives for investment in MFs, and to identify the information sources influencing scheme selection, and the preferred mode of communication, a questionnaire (ANNEXURE I) was designed and the respondents were asked to rank their preferences on a ranking scale. The ranks were ascertained by obtaining the weighted mean value of the responses. To identify the factors that influence the investors fund/scheme selection, 23 variables were identified through evidence from past research. Based on theory, past research, and personal judgment, the factors that could influence the investors in their selection of Mutual funds/schemes was first grouped into 3 major groups – Fund/Scheme qualities, fund sponsor qualities and the expected investor services. Then the 23 identified variables were classified under the appropriate group as follows: SCHEMES QUALITIES 1. Fund’s/Scheme’s performance record 33


2. Fund’s/Scheme’s brand name 3. Scheme’s expense ratio 4. Scheme’s portfolio constituents 5. Reputation of scheme(s), portfolio manager(s) 6. Withdrawal facilities 7. Rating by a rating agency 8. Innovativeness of the Scheme 9. Products with tax benefits 10.Entry and Exit load

FUND SPONSOR’S QUALITIES 1. Reputation of the sponsoring firm 2. Sponsor offers a wide range of schemes with different investment objectives 3. Brand name of Sponsor 4. Sponsor has a well developed Agency Net work/Infrastructure 5. Sponsor has an efficient research wing 6. Sponsor’s expertise in managing money INVESTOR SERVICES 1. Disclosure of investment objectives, method and periodicity of valuation in advertisement 2. Disclosure of method, periodicity of scheme’s sales and repurchase in offer documents 3. Announcement of NAV on every trading day 4. Disclosure of deviation of the investments from the expected pattern 5. Disclosure of scheme’s investments on every trading day 6. Mutual Fund Investors’ grievance redressal machinery_ 7. Additional Services like free insurance, free credit card, loans on collateral, tax benefits etc

In the survey, the respondents were asked to rate the importance of the 23 specified variables on a 5 point scale ranging from Highly Important (1) to Not at all Important (5). The data for each of the 3 sub -groups were factor analyzed using Principal Component Analysis with the objective of identifying the factor in the sub -group which turns out to be significant in the fund/scheme selection. 34


SAMPLE SELECTION Survey was conducted on 50 existing investors of Mahindra finance and 50 more who were planning to invest into various schemes through Mahindra Finance. The survey was conducted during March – April 2009. The required data was collected through a pre-tested questionnaire which was administered through different techniques i.e.- through telephone, emails, direct and interviewer administered. Profile of Investors, distribution of the present investors by demographic factors is given below. TABLE Distribution of retail mutual fund investors by demographic factors INVESTOR PROFILE SEX Male Female AGE Below 30 31-40 41-50 Above 50 MARITAL STATUS Married Unmarried OCCUPATION Salaried Business Retired ANNUAL INCOME (Rs) Below 150000 150000 – 300000 300000 – 400000 Above 400000 ANNUAL SAVINGS (Rs) Below 50000 50000 – 100000 100000 – 150000 150000 – 250000 Above 250000

NO OF RESPONDENTS

78 22 14 36 30 20 58 42 60 26 14 14 54 14 18 39 24 10 12 15

35


Age Distribution in Sample A majority of the sample were from the 31-40 age group followed by the 4150 age group (30%). The sample contained a minimum number of investors in the below 0 age group. Above 50 20%

Age Distribution 41-50 30%

31-40 36%

Below 30 14%

Occupational Distribution in Sample A majority of the people surveyed were from the salaried class (60%). The business class (26%) also includes those people who are self employed.

Occupational Distribution Retired 14% Busines s 26%

Salaried 60%

Annual Income Distribution in Sample Most of the people surveyed belonged to the 150000 to 300000 annual income category. Above 400000 18%

Annual Income Below 150000 14%

300000 400000 14% 150000 300000 54%

36


Disposable Income Distribution in Sample More than 39% of people save below 50000 a year whereas only 15 %of people save more than 250000 a year.

Disposable Income Distribution Above 250000 15% 150000 250000 12%

Below 50000 39%

50000 - 100000 24%

100000 150000 10%

Investment type Distribution in Sample Maximum no of people invest their money in providend funds. This is followed by the Mutual funds category. This can be attributed to the fact that a majority of the sample were salaried employees.

Investment Type Distribution Postal Savings 14% Stocks 24%

Life Insurance 10% Bank Deposits 4% MF 22%

PPF 26%

37


Annual Income Vs Annual Savings

Income vs Savings

Percent

100 80 60 40 20 0

Above 400000 300000 - 400000 150000 - 300000 Below 50000

Below 150000

50000 100000

100000 150000

150000 250000

Above 250000

Savings Below 50000

50000 - 100000 100000 - 150000 150000 - 250000 Above 250000

Below 150000

100

0

0

0

0

150000 - 300000

88

9

3

0

0

300000 - 400000

30

47

15

8

0

Above 400000

12

18

25

28

17

Almost 100% of the people in the salary class of below 150000 save less than 50000 a year. This is attributed to the fact that this slab is tax free. People in the salary class of 1,50,000 to 3,00,000 mostly invest below 50,000. The income slab of 3,00,000 invest maximum 50,000 to 1,00,000 yearly. The maximum no of people who invest more than 2,50,000 a year lies in the above 4,00,000 category income slab.

38


Age VS Investment Type

Percent

Age Vs Investment Type 45 40 35 30 25 20 15 10 5 0

Above 50 40-50 30-40 Below 30

Stocks

PPF

MF

Bank Deposits Life Insurance Postal Savings

Below 30

14

29

14

0

43

0

30-40

24

24

36

0

16

0

40-50

29

29

18

0

0

24

Above 50

22

22

19

15

0

22

It can be inferred from the readings that young people invest mostly in life insurance schemes whereas the age group of 30-40 and 40-50 invest their money mostly in mutual funds and stocks. Risk averse young people also invest in PPFs. They hardly go for bank deposits and postal savings etc. Postal savings and bank deposits fare well in case of old investors as can be seen from the chart.

39


Age Vs Time Horizon

%

Age VS Time Horizon 50 45 40 35 30 25 20 15 10 5 0

Above 50 40-50 30-40 Below 1 Year

Below 30

1-3 Years

3-5 Years

5 above

Time of Deposit Below 1 Year

1-3 Years

3-5 Years

5 above

Below 30

25

50

25

0

30-40

29

29

43

0

40-50

38

38

23

0

Above 50

29

29

24

19

The below 30 age group prefer a time horizon of mostly 1-3 years(50%) and rest of them prefer the below one year and the 3-5 yrs schemes equally. The age group of 50 above prefers the 5 yrs time horizon more than the other age groups.

40


FURTHER SCOPE OF THE STUDY The study shall further include the comparative analysis of other demographic factors (Income, Occupation and Gender) with types and horizon of investment. 1. 2. 3. 4. 5. 6.

Income VS Type of Investment Income VS Horizon of Investment Occupation VS Type of Investment Occupation VS Horizon of Investment Gender VS Type of Investment Gender VS Horizon of Investment

41


FACTORS AFFECTING SCHEME SELECTION IN MUTUAL FUNDS Ranking of the Investment Objective in Sample OBJECTIVE Safety Liquidity Tax Benefit Dividend Capital Appreciation

RANK 1 4 3 2 5

The investors look for safety first in MF products, followed by good returns, Tax Benefits, liquidity and capital appreciation. The survey further reveals that the scheme selection decision is made by respondents on their own, and the other sources influencing their selection decision are News papers and Magazines, Brokers and Agents, Television, Friends suggestions and Direct Mail in that order Preferable Route to Mutual Fund Investing as indicated below. ROUTE Friends Suggestions Newspaper/Magazines Self Decision Television Brokers/Agents Email/Direct mail

RANK 5 2 1 4 3 6

Since the survey reveals priority to “Self decision in scheme selection. Information dissemination through all possible routes which will reach the investors should be tapped in a cost-effective manner by AMCs. Diagnostically looking, the fact that the investors prefer to make their own scheme selection decision, in spite of their lack of knowledge about the sophisticated market environment, reflects their reluctance to believe the available quality of service provided by the agents, financial consultants and investment advisers. These agencies and persons engaged in giving investment advice should gear up now to win the confidence of the investors. In the long run, it will help both the investors and the investment advisers, thus strengthening the link between the individual investors and the Mutual Funds. Scheme Preference of Mutual Fund Investors

42


SCHEME Growth Income Balanced

RANK 1 2 3

FURTHER SCOPE OF THE STUDY Although it has been observed that safety is the number one motive behind investment in any mutual funds, the effect of demographics cannot be neglected while observing the scheme selection behavior of Mutual Fund investors. Thus this study will further include a analysis of the perception of different individuals belonging to different demographics on various objectives of investment offered by mutual funds (Tax benefit, Dividend, Safety, Capital Appreciation, Liquidity). This will help in finding out what product to offer to which type of individual.

43


Influence of Product Qualities on Scheme Selection OBSERVATION The 10 fund related variables were analyzed for their importance. The analysis reveals that the investor considers all the 10 variables as important in his selection of the fund/scheme. The mean values of the readings were obtained and the factors were ranked according to their importance. VARIABLES Scheme’s Performance Records Schemes Brand Name Portfolio of Investment Withdrawal facility Reputation of Schemes Managers Products with Tax Benefits Ratings Entry and Exit Load Expense Ratio Innovativeness of Scheme

RANKING 1 2 3 4 5 6 7 8 9 10

To identify the investor’s underlying fund/scheme selection criteria, so as to group them into specific market segment to enable the designing of the appropriate marketing strategy, Factor Analysis was done using Principal Component Analysis. The readings obtained are given below.

COMMUNALITIES Variable A1 A2 A3 A4 A5 A6 A7 A8 A9 A10

Initial 1 1 1 1 1 1 1 1 1 1

Extraction 0.438 0.798 0.248 0.675 0.409 0.371 0.352 0.359 0.593 0.435

INITIAL EIGEN Eigen Factor Value 1 2.327 2 1.265 3 1.086 4 0.971 5 0.931 6 0.87 7 0.71 8 0.693 9 0.61 10 0.537

VALUES % of variance 23.268 12.653 10.861 9.71 9.307 8.701 7.098 6.93 6.098 5.374

Cumulative 23.268 35.921 46.782 56.492 65.799 74.5 81.598 88.528 94.626 100 44


Extraction Method- Principal Component Analysis Variable

FACTOR MATRIX Factor 1 Factor 2 Factor 3

A1 A2 A3 A4 A5 A6 A7 A8 A9 A10

0.316 0.234 0.416 0.354 0.542 0.468 0.551 0.589 0.54 0.646

0.429 0.194 0.272 0.7 0.25 -0.389 -0.199 -0.102 -0.446 -0.131

-0.392 0.84 -2.56E-02 -0.245 0.229 -1.91E-02 9.14E-02 4.76E-02 -0.32 7.13E-03

ROTATED FACTOR MATRIX Factor 1 Factor 2 Factor 3 6.19E-02 2.40E-02 0.202 -6.48E-02 0.299 0.604 0.562 0.554 0.719 0.661

0.641 -5.79E-02 0.423 0.816 0.369 -7.63E-02 7.09E-02 0.182 2.88E-02 0.202

-0.513 0.891 0.166 6.91E-02 0.428 -1.17E-03 0.177 0.174 -0.275 0.144

Total variance Explained EXTRACTION SUM OF ROTATIONAL SUM OF SQUARED LOADINGS SQUARED LOADINGS Eigen % of Eigen % of Factor Value variance Cumulative Value variance Cumulative 1 2.327 23.268 23.268 2.006 20.059 20.059 2 1.265 12.653 35.921 1.481 14.809 34.868 3 1.086 10.861 46.782 1.191 11.914 46.782 Extraction Method- Principal Component Analysis

Component and Rotated Component Matrix Extraction Method- Principal Component Analysis Rotation Method- Varimax with Kaiser Normalization

INFERENCE Retaining only the variables with eigen values greater than one, we can infer that 23.268% of variance is explained by factor 1; 12.653% of variance is explained by factor 2 and 10.861% of variance is explained by factor 3 and together, all three factors contributed to 46.782% of variance. On the basis of Varimax Rotation with Kaiser Normalization, 3 factors have emerged. Each factor is constituted of all those variables that have factor loadings greater than or equal to 0.5. Thus A6, A7, A8, A9 and A10 constituted the first factor. This factor was named as “Intrinsic Product Qualities”; A1 and A4 constituted the second factor and this was conceptualized as “Portfolio Management”; A2 constituted the 3rd factor and was conceptualized as “Image” factor. 45


Thus, after rotation, factor 1 (Intrinsic Product Qualities) accounts for 20.059% of the variance; factor 2 (Portfolio Management) accounts for 14.809% of variance and factor 3 (Image) accounts for 11.914% of var iance and all 3 factors together explain for 46.782% of variance. CLUBBING OF FACTORS INTO VARIABLES FACTOR NAME Intrinsic Qualities Product

of

VARIABLE the Withdrawal Facilities Rating by a rating agency Innovativeness of Scheme Tax benefits

Portfolio Management

Performance Record Investment Portfolio

Image

Reputation of Brand name

FURTHER SCOPE OF THE STUDY The six sponsor related variables are to be analyzed for their importance using Factor Analysis. The Seven Investors Services related variables are also to be analyzed for their importance using Factor Analysis.

46


ANNEXURE 1 This survey is for the sole purpose of collecting data for a survey carried out by the ICFAI Business School Management students for internship thesis. Information in this survey would not be disclosed for any other purpose. We are very much grateful to you for your cooperation and time. NAME______________________________________________ Email Id_________________________________________ Mobile_____________________ Please tick mark I.SEX: Male

Female

Below 30

30 – 40

III.INCOME:< 150000

150000-30000

II.AGE:

IV. OCCUPATION

Salaried

40 - 50 300000-400000

50 and above 4000000<

Businessman

Retired

Please fill in SAVINGS = Rs ____________ / Year What % of your savings are invested for 5 years and above __________________ (approx.) What % of your savings are invested for 3-5 years__________________ (approx.) What % of your savings are invested for 1-3 years___________________ (approx) What % of your savings are invested for less than one year________________ (approx) Please rank the choices according to your preferences as indicated in example. Give Rank 1 to the most preferred option. Give Rank 2 to the next best option and so on. EXAMPLE: What season do you like most? Rainy 3 Winter 1 Summer 2 In which schemes have you invested most till date? (Rank 1-6) Mutual Funds Fixed Deposits Life Insurance

Postal Savings Stocks Provident Funds

What were the most important factors while selecting a mutual fund scheme? (Rank 1 to 6) Tax Benefit Capital Appreciation

Dividend Liquidity

Safety

47


Which environmental forces influenced you the most to invest in mutual fund? Rank in order of preference from 1 to 6. Friends Suggestions Newspapers / Magazines Television and commercials Brokers and Agents Self evaluation and decision Direct mail / E mail

Which mode of communication do you prefer most for receiving updates and performance of your scheme / portfolio of mutual fund investment? Rank 1 to 4. Telephone E mail / Internet Direct mail Personal contact / visit.

GIVE MARKS OUT OF 5 TO EACH OF THE ATTRIBUTES FOR THEIR IMPORTANC E WHILE MAKING A INVESTMENT DECISION. Please Refer Example. Give: Give: Give: Give: Give:

1 2 3 4 5

for Highly Important Factor for Important for Moderately Important for Less Important for Not at all Important.

EXAMPLE: SL NO.

Please feel free to leave any question that you can’t understand Unmarked

Grade Funds Popularity? ________________________ SCHEMES QUALITIES

A1

Fund’s/Scheme’s performance record_______________

A2

Fund’s/Scheme’s brand name_____________________

A3

Scheme’s expense ratio__________________________

A4

Scheme’s portfolio constituents____________________

A5

Reputation of scheme(s), portfolio manager(s)________

A6

Withdrawal facilities____________________________

3 MARKS

48


A7

Rating by a rating agency________________________

A8

Innovativeness of the Scheme_____________________

A9

Products with tax benefits________________________

A10

Entry and Exit load_____________________________

SL NO.

FUND SPONSOR’S QUALITIES

B1

Reputation of the sponsoring firm_________________

B2

Sponsor offers a wide range of schemes with different investment objectives___________________________

B3

Brand name of Sponsor__________ ______________

B4

Sponsor has a well developed Agency Net work/Infrastructure_____________________________

B5

Sponsor has an efficient research wing______________

B6

Sponsor’s expertise in managing money_____________

SL NO.

INVESTOR SERVICES

C1

Disclosure of investment objectives, method and periodicity of valuation in advertisement____________

C2

Disclosure of method, periodicity of scheme’s sales and repurchase in offer documents_____________________

C3

Announcement of NAV on every trading day____________

MARKS

MARKS

49


C4

Disclosure of deviation of the investments from the expected pattern_________________________________

C5

Disclosure of scheme’s investments on every trading day__________________________________________

C6

Mutual Fund Investors’ grievance redressal machinery_

C7

Additional Services like free insurance, free credit card, loans on collateral, tax benefits etc.________________

50


REFERENCES 1. www.moneycontrol.com 2. www.amfiindia.com 3. www.wikepedia.com 4. Shanmugham, R., 2000, “Factors Influencing Investment Decisions”, Indian Capital Markets – Trends and Dimensions (ed.), Tata McGraw-Hill PublishingCompany Limited, New Delhi, 2000 5. Anjan Chakrabarti and Harsh Rungta, 2000, “Mutual Funds Industry in India :An in-depth look into the problems of credibility, Risk and Brand”, The ICFAI Journal of Applied Finance, Vol.6, No.2, April, 27-45. 6. Customer Orientation in Designing Mutual Fund Products, -An Analytical Approach to Indian Market Preferences, Dr Tapan K Panda, Faculty Member, Indian Institute of Management, Lucknow. 7. Review Of Marketing Research Volume 5: K. Naresh Malhotra:

51


THANK YOU

52

FACTORS AFFECTING INVESTORS PREFERENCE FOR MUTUAL FUNDS IN INDIA

Recommend Documents