A Summer Internship Project Report on

“Dynamics of Mutual Fund Distribution”

Submitted in partial fulfillment of the requirements for the degree of

Post Graduate Diploma in Management (Marketing)

By

HANISH DHILLON
(Roll No. ISBS M 48)

Under the guidance of

Mr. Dilraj Singh

Manger Banking & Corporate Channel-HDFC AMC Ltd

A Study Conducted for HDFC AMC Ltd

At
Indira School of Business Studies,
Tathawade, Pune 411033

(2008-10)

CONTENTS

1
Chapter/ Particulars Page
Sub No
Headings
1 Acknowledgements 4
2 Executive Summary 5
3 Objectives 8
4 Introduction- 10
4.1 - Mutual Funds 11
4.2 - History of Mutual Funds 12
4.3 - Current state of Mutual Funds 14
4.4 - Key Characteristics 16
4.5 - Advantages of Investing in Mutual 20
4.6 Funds 22
4.7 - Disadvantages of Investing in Mutual 23
4.8 Funds 25
4.9 - Risks Associated with Investing in 28
4.10 Mutual Funds 29
- Categories of Mutual Funds
- Snapshot of Various funds
- Risk Hierarchy of Different Mutual
Funds

5 Company Profile- HDFC AMC 30

6 Research Study 41
6.1 - Introduction 42
6.2 - Review of Literature 42
6.3 - Type of Research 42
6.4 - Data collection Technique 42
6.5 - Scope of the Study 43
6.6 - Data sources 43
6.7 - Sampling procedure 43
6.8 - Sample Size 43
6.9 - Techniques for Analysis 43

2
6.10 - Data presentation tools 44
6.11 - Limitations 44

7 Data Analysis
7.1 - Bar Graph 7.1 45
7.2 - Bar Graph 7.2 46
7.3 - Bar Graph 7.3 48
7.4 - Bar Graph 7.4 49
7.5 - Bar Graph 7.5 51
7.6 - Bar Graph 7.6 53
7.7 - Bar Graph 7.7 55
7.8 - Bar Graph 7.8 57
7.9 - Bar Graph 7.9 58
8 Research Conclusions 60
9 Recommendations 62
10 Annexure and Bibliography 65

ACKNOWLEDGEMENTS

3
I take this opportunity to express my deep sense of gratitude to all
those who have contributed significantly by sharing their knowledge
and experience in the completion of this project work.

I am greatly obliged to, for providing me with the right kind of

opportunity and facilities to complete this venture. My first word of
gratitude is due to Mr. Dilraj Singh – Manager Banking &
Corporate Channel, HDFC Mutual Fund, My corporate guide, for his
kind help and support and his valuable guidance throughout my
project. I am thankful to him for providing me with necessary insights
and helping me out at every single step.

I am highly thankful to Prof. Bidyut Gogoi – My internal faculty guide

under whose able guidance this project work was carried out. I thank
him for his continuous support and mentoring during the tenure of the
project.

Finally, I would also like to thank all my dear friends for their
cooperation, advice and encouragement during the long and arduous
task of carrying out the project and preparing this report.

4
2. EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

5
The Indian mutual fund industry has witnessed significant growth in the
past few years driven by several favorable economic and demographic
factors such as rising income levels and the increasing reach of Asset
Management Companies (AMCs) and distributors. However, after
several years of relentless growth, the industry witnessed a fall of 8
percent in the assets under management in the financial year 2008-09
that has impacted revenues and profitability.
Recent developments triggered by the global economic crisis have
served to highlight the vulnerability of the Indian mutual fund industry
to global economic turbulence and exposed our increased dependence
on corporate customers and the retail distribution system. It is
therefore an opportune time for the industry to dwell on the
experiences and develop a roadmap through a collaborative effort
across all stakeholders, to achieve sustained profitable growth and
strengthen investor faith and confidence in the health of the industry.
Innovative strategies of AMCs and distributors, enabling support from
the regulator SEBI, and pro-active initiatives from the industry bodies
CII and AMFI are likely to be the key components in defining the future
shape of the industry.
Total Investment scenario is changing, in past people were not
interested in investment because there were no good options available
for investment. Now there are many options available for investment
like life Insurance, Mutual fund, Equity market, Real asset, etc.
The basic objective of any financial services company would be to
provide an absolute tailor made products and services to the customer
and to advocate them, enrich them and finally retain them into the
organization.
The underlying difference or core competence that can help any AMC
outperform others is by providing differentiated services that are tailor
made as according to the customers need and objective of investing
money in a Mutual Fund.

6
This project involves study of mutual fund Industry and evaluating and
suggesting measures to improve the services provided by the various
Banking Channels of HDFC AMC and also to identify the strong and the
weak points so that an appropriate sales pitch can be developed.
The sales pitch highlighted features like HDFC being the pioneer in
terms of AUM, its huge distributor base, returns being independent of
the market ups and downs, etc.
During the Internship I mainly worked with two of the highest revenue
generator Banking Channels mainly HDFC Bank, Boat Club Road and
DBS Bank, Dhole Patil Road.
Initially Cold Calls were made to different customers (Retail) from
company‘s database and appointments were sought. Thereafter a brief
questionnaire was filled up by them regarding their perception about
HDFC AMC.
The need for this research is to emphasize and understand the
expectations of customers of mutual funds and how the company can
be more customers centric instead of Product Centric.
This report summarizes the current state of the Indian mutual fund
industry highlighting the key challenges and issues. We have also
presented the ‘Voice of Customers’ to understand their needs and
priorities.
I acknowledge the inputs received from AMCs, distributors, customers
and service providers for this report.

7
3. PROJECT OBJECTIVES

8
 OBJECTIVES OF THE PROJECT

As the title of the project suggests, the objective of the project is to find
out the satisfaction level of different Banking Channels with respect to
the services & overall quality provided by the AMC. The following are
the sub objectives of the project:

• To understand the different investment options provided by HDFC

mutual funds through its mutual fund schemes.

• To know the investors’ expectations on mutual funds offered by

HDFC AMC.

• Find out there preference parameters for selling a particular fund.

• Understanding the competition for the service provided by

different mutual fund companies.

• Finding out ways and means to improve on the services by HDFC

Mutual Fund.

• Understanding the different ratios & portfolios so as to tell the

Banks about these terms, by this, managing the relationship with
the Banks.

• Understanding the attitude and behavior of the distributors and

channel partners towards HDFC AMC.

• To identify and over come the gap between the management

perception and the customers expectation.

• To come up with strategies to maintain better business

relationships with our banking channels.

9
4. INTRODUCTION

10
4.1 MUTUAL FUNDS

A mutual fund is a professionally-managed firm of collective

investments that pools money from many investors and invests it in
stocks, bonds, short-term money market instruments, and/or other
securities, it is a trust registered with the Securities and Exchange
Board of India (SEBI), which 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.
The value of each unit of the mutual fund, known as the net asset value
(NAV), is mostly calculated daily based on the total value of the fund
divided by the number of shares currently issued and outstanding. The
value of all the securities in the portfolio in calculated daily. From this,
all expenses are deducted and the resultant value divided by the
number of units in the fund is the fund’s NAV.

NAV= Total value of the fund

________________________________________
No. of shares currently
M issued and outstanding
U
T
U
I A Invest in
N L Variety of
V Invest their M
Stocks/
E Money F A
Bonds
S U R
T N K
O D E
R Investments s T
S portfolio of S Investment
from C Individual
H from
Profit/Loss 11
E Profit/Loss
M
E
S
4.2 HISTORY OF INDIAN 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. 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 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 Can
bank 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

12
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, 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.

13
4.3 CURRENT STATE

The Indian mutual fund industry has evolved from a single player
monopoly in 1964 to a fast growing, competitive market on the
back of a strong regulatory framework.

AUM Growth
The Assets under Management (AUM) have grown at a rapid pace
over the past few years, at a CAGR of 35 percent for the five-
year period from 31 March 2005 to 31 March 2009. Over the 10-
year period from 1999 to 2009 encompassing varied economic
cycles, the industry grew at 22 percent CAGR. This growth was
despite two falls in the AUM - the first being after the year 2001
due to the dotcom bubble burst, and the second in 2008
consequent to the global economic crisis (the first fall in AUM in
March 2003 arising from the UTI split.

AUM Base and Growth Relative to the Global Industry

India has been amongst the fastest growing markets for
mutual funds since 2004; in the five-year period from 2004
to 2008 (as of December) the Indian mutual fund industry

14
grew at 29 percent CAGR as against the global average of
4 percent3. Over this period, the mutual fund industry in
mature markets likes the US and France grew at 4 percent,
while some of the emerging markets viz. China and Brazil
exceeded the growth witnessed in the Indian market. However,
despite clocking growth rates that are amongst the highest in
the world, the Indian mutual fund industry continues to be a
very small market; comprising 0.32 percent share of the
global AUM of USD 18.97 trillion as of December 20084.

Share of Mutual Funds in Household Financial Savings

Investment in mutual funds in India comprised 7.7 percent of
the gross household financial savings in FY 2008, a
significant increase from 1.2 percent in FY 2004. The
households in India continue to hold 55 percent of their
savings in fixed deposits with banks, 18 percent in insurance
and 10 percent in currency as of FY 2008. In 2008, the UK
had more than thrice the investments into mutual funds as
a factor of total household savings (26 percent), than India
had in the same time period. As of December 2008, UK
households held 61 percent of the total savings in bank
deposits, 11.6 percent in equities and 1 percent in bonds.

Profitability
The increase in revenue and profitability in the Indian mutual
fund industry has not been commensurate with the AUM
growth in the last 5 years. The AUM grew at 35 percent
CAGR in the period from March 2005 to 2009, while the
profitability of AMCs - which is defined as PBT as a
percentage of the AUM - declined from 24 bps in FY 2004
to 14 bps in FY 2008. During FY 2004 and FY 2008, the

15
investment management fee as a percent of average AUM
was in the range of 55 to 58 bps (small increase to 64
bps in FY 2006) due to the industry focus on the
underlying asset mix comprising relatively low margin products
being targeted at the institutional segment. The operating
expenses, as a percentage of AUM, rose from 41 bps in FY
2004 to 113 bps in FY 2008 largely due to the increased
spend on marketing, distribution and administrative expenses
impacting AMC margins. Rising cost pressures and decline in
profitability have impacted the entry plans of global players
eyeing an Indian presence. The growth in AUM accompanied
by a decline in profitability necessitates an analysis of the
underlying characteristics that have a bearing on the growth
and profitability of the Indian mutual fund industry.

4.4 THE INDIAN MUTUAL FUND INDUSRTY KEY- KEY

CHARACTERISTICS
Customers
The Indian mutual fund industry has significantly high
ownership from the institutional investors. Retail investors
comprising 96.86 percent in number terms held approximately
37 percent of the total industry AUM as at the end of
March 200811, significantly lower than the retail participation
in the US at 82 percent of AUM as at December 2008. Out
of a total population of 1.15 billion, the total number of
mutual fund investor accounts in India as of 31 March 2008
was 42 million (the actual number of investors is estimated
to be lower as investors hold multiple folios). In the US, an

16
estimated 92 million individual investors owned mutual funds
out of a total population of 305 million in 2008.
In the last few years, the retail investor participation, in
particular, in Tier 2 and Tier 3 towns, has been on the rise
aided by the buoyant equity markets.

Products
The Indian mutual fund industry is in a relatively nascent
stage in terms of its product offerings, and tends to
compete with products offered by the Government providing
fixed guaranteed returns. As of December 2008, the total
number of mutual fund schemes was 1,002 in comparison to
10,349 funds in the US. Debt products dominate the product
mix and comprised 49 percent of the total industry AUM as
of FY 200915, while the equity and liquid funds comprised 26
percent and 22 percent respectively. Open-ended funds
comprised 99 percent of the total industry AUM as of March
2009. While traditional vanilla products dominate in India, new
product categories viz. Exchange Traded Funds (ETFs), Gold
ETFs, Capital Protection and Overseas Funds have gradually
been gaining popularity 2008.

Markets
While the mutual fund industry in India continues to be
metro and urban centric, the mutual funds are beginning to
tap Tier 2 and Tier 3 towns as a vital component of their
growth strategy. The contribution of the Top 10 cities to
total AUM has gradually declined from approximately 92
percent in 2005 to approximately 80 percent currently.

Distribution Channels

17
As of March 2009, the mutual fund industry had 92,499
registered distributors as compared to approximately 2.5
million insurance agents. The Independent Financial Advisors
(IFAs) or Individual distributors, corporate employees and
corporates comprised 73, 21 and 6 percent respectively of
the total distributor base.
Banks in general, foreign banks and the leading new private
sector banks in particular, dominate the mutual fund
distribution with over 30 percent AUM share. National and
Regional Distributors (including broker and dealers) together with
IFAs comprised 57 percent of the total AUM as of 2007.
The public sector banks are gradually enhancing focus on
mutual fund distribution to boost their fee income.

Industry Structure
The Indian mutual fund industry currently consists of 38
players that have been given regulatory approval by SEBI.
The industry has witnessed a shift has changed drastically in
favour of private sector players, as the number of public
sector players reduced from 11 in 2001 to 5 in 2009. The
public sector has gradually ceded market share to the private
sector. Public sector mutual funds comprised 21 percent of
the AUM in 2009 as against 72 percent AUM share in 2001.
The mutual fund houses based on product portfolio and
distribution strategy, the key elements of competitive strategy,
can be segmented into three categories:
• The market leaders having presence across all product
segments
• Players having dominant focus on a single product segment
- debt or equity

18
• Players having niche focus on an emerging product
category or distribution channels.
The market leaders have focused across product categories
for a more diversified AUM base with an equitable product
mix that helps maintain a consistent AUM size. Although the
Indian market has relatively low entry barriers given the low
minimum networth required to venture into mutual fund
business, existence of a strong local brand and a wide and
deep distribution footprint are the key differentiators.

Operations
The Indian mutual fund industry while on a high growth path
needs to address efficiency and customer centricity. AMCs
have successfully been using outsourced service providers such
as custodians, Registrar and Transfer Agents (R&T) and more
recently, fund accountants, so that mutual funds can focus
on core aspects of their business such as product
development and distribution. Functions that have been
outsourced are custody services, fund services, registrar and
transfer services aimed at investor servicing and cash
management. Managing costs and ensuring investor satisfaction
continue to be the key goals for all mutual funds today.
However, there is likely to be scope for optimizing
operations costs given the trend of rising administrative and
associated costs as a percentage of AUM.

Regulatory Framework
The Indian mutual fund industry in terms of regulatory
framework is believed to match up to the most developed
markets globally. The regulator, Securities and Exchange Board
of India (SEBI), has consistently introduced several regulatory

19
measures and amendments aimed at protecting the interests
of the small investor that augurs well for the long term
growth of the industry. The implementation of Prevention of
Money Laundering (PMLA) Rules, the latest guidelines issued
in December 2008, as part of the risk management practices
and procedures is expected to gain further momentum. The
current Anti Money Laundering (AML) and Combating Financing
of Terrorism (CFT) measures cover two main aspects of
Know Your Customer (KYC) and ‘suspicious transaction
monitoring and reporting’.
The regulatory and compliance ambit seeks to dwell on a
range of issues including the financial capability of the
players to ensure resilience and sustainability through increase
in minimum net worth and capital adequacy, investor protection
and education through disclosure norms for more information
to investors, distribution related regulations aimed at
introducing more transparency in the distribution system by
reducing the information gap between investors and
distributors, and by improving the mechanism for distributor
remuneration. The success of the relatively nascent mutual
fund industry in India, in its march forward, will be
contingent on further evolving a robust regulatory and
compliance framework that in supporting the growth needs
of the industry ensures that only the fittest and the most
prudent players survive.

20
4.5 ADVANTAGES OF MUTUAL FUND

Diversification of Risk
Helps diversifying risk by investing money in a Basket of Assets.
Diversification reduces risk of loss, as compared to investing directly in
one or two shares or debentures or other instruments. When an
investor invests directly, all the risk of potential loss is his own. This
risk reduction is one of the most important benefits of a collective
investment vehicle like mutual fund.

Reduction of Transaction Cost

Mutual Funds provide the benefit of cheap access to expensive stocks.
A direct investor bears all the cost of investing such as brokerage and
custody of security. When going through a fund, he has the benefits of
economies of scale; the funds pay a lesser costs because of larger
volumes, benefits passed on to its investors.

Convenience and Flexibility

Being institutions with good bargaining power in markets, mutual funds
have access to crucial corporate information, which individual investors
cannot access. Mutual fund management companies offer many
investor services that a direct market investor cannot get. Investors
can easily transfer their holdings from one scheme to the other; get
updated market information, and so on.

Liquidity
An investor can liquidate the investment, by selling the units to the
fund if open-end, or selling them in the market if the fund is close-end,
and collect funds at the end of each period specified by the mutual
fund or the stock market.

Choice of Schemes
The Investor gets choice from varied Funds in accordance to his Needs
and Objectives.

21
Lucidity
You get regular information on the value of your investment in addition
to disclosure on the specific investments made by the mutual fund
scheme.
Professional Management
Most mutual funds pay topflight professionals to manage their
investments. These managers decide what securities the fund will buy
and sell.

Regulatory Over-sight
Mutual funds are subject to many government regulations that protect
investors from fraud. Securities Exchange Board of India (“SEBI”), the
mutual funds regulator has clearly defined rules, which govern mutual
funds. These rules relate to the formation, administration and
management of mutual funds and also prescribe disclosure and
accounting requirements. Such a high level of regulation seeks to
protect the interest of investors.

22
4.6 DISADVANTAGES OF MUTUAL FUND
No Guarantees
No investment is risk free. If the entire stock market declines in value,
the value of mutual fund shares will go down as well, no matter how
balanced the portfolio. Investors encounter fewer risks when they
invest in mutual funds than when they buy and sell stocks on their own.
However, anyone who invests through a mutual fund runs the risk of
losing money.

Fees and commissions

All funds charge administrative fees to cover their day-to-day
expenses. Some funds also charge sales commissions or "loads" to
compensate brokers, financial consultants, or financial planners. Even if
you don't use a broker or other financial adviser, you will pay a sales
commission if you buy shares in a Load Fund.

Taxes
During a typical year, most actively managed mutual funds sell
anywhere from 20 to 70 percent of the securities in their portfolios. If
your fund makes a profit 34 on its sales, you will pay taxes on the
income you receive, even if you reinvest the money you made.

Management risk
When you invest in a mutual fund, you depend on the fund's manager
to make the right decisions regarding the fund's portfolio. If the
manager does not perform as well as you had hoped, you might not
make as much money on your investment as you expected. Of course,

23
if you invest in Index Funds, you forego management risk, because
these funds do not employ managers.

Dilution
It’s possible to have too much diversification. Because funds have small
holdings in so many 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.
4.7 RISKS ASSOCIATED WITH MUTUAL FUNDS
Market Risk
Market risk relates to the market value of a security in the future.
Market prices fluctuate and are susceptible to economic and financial
trends, supply and demand, and many other factors that cannot be
precisely predicted or controlled.

Political Risks
Changes in the tax laws, trade regulations, administered prices, etc
are some of the many political factors that create market risk.
Although collectively, as citizens, we have indirect control through the
power of our vote individually, as investors, we have virtually no
control.

Inflation Risk
Interest rate risk relates to future changes in interest rates. For
instance, if an investor invests in a long-term debt Mutual Fund
scheme and interest rates increase, the NAV of the scheme will fall
because the scheme will be end up holding debt offering lower
interest rates.

24
Business Risk
Business risk is the uncertainty concerning the future existence,
stability, and profitability of the issuer of the security. Business risk is
inherent in all business ventures. The future financial stability of a
company cannot be predicted or guaranteed, nor can the price of its
securities. Adverse changes in business circumstances will reduce the
market price of the company’s equity resulting in proportionate fall in
the NAV of the Mutual Fund scheme, which has invested in the equity
of such a company.

Economic Risk
Economic risk involves uncertainty in the economy, which, in turn, can
have an adverse effect on a company’s business. For instance, if
monsoons fail in a year, equity stocks of agriculture-based companies
will fall and NAVs of Mutual Funds, which have invested in such stocks,
will fall proportionately.

25
4.8 CATEGORIES OF MUTUAL FUNDS

Mutual funds can be classified as follow:

Based on their structure

26
 • Open-ended funds: Investors can buy and sell the units from
the fund, at any point of time.

• Close-ended funds: These funds raise money from investors

only once. Therefore, after the offer period, fresh investments
can not be made into the fund. If the fund is listed on a stocks
exchange the units can be traded like stocks (E.g., Morgan
Stanley Growth Fund). Recently, most of the New Fund Offers of
close-ended funds provided liquidity window on a periodic basis
such as monthly or weekly. Redemption of units can be made
during specified intervals. Therefore, such funds have relatively
low liquidity.

Based on their investment objective:

• Equity funds: These funds invest in equities and equity

related instruments. With fluctuating share prices, such
funds show volatile performance, even losses. However,
short term fluctuations in the market, generally smoothens
out in the long term, thereby offering higher returns at
relatively lower volatility. At the same time, such funds can
yield great capital appreciation as, historically, equities
have outperformed all asset classes in the long term.

• Balanced fund: Their investment portfolio includes both

debt and equity. As a result, on the risk-return ladder, they fall
between equity and debt funds. Balanced funds are the ideal
mutual funds vehicle for investors who prefer spreading their risk
across various instruments. Following are balanced funds classes:

27
 Debt-oriented funds -Investment below 65% in equities.

Equity-oriented funds -Invest at least 65% in equities, remaining

in debt.

• Debt fund: They invest only in debt instruments, and are a

good option for investors averse to idea of taking risk associated
with equities. Therefore, they invest exclusively in fixed-income
instruments like bonds, debentures, Government of India
securities; and money market instruments such as certificates of
deposit (CD), commercial paper (CP) and call money. Put your
money into any of these debt funds depending on your
investment horizon and needs.

– Liquid funds
These funds invest 100% in money market instruments, a
large portion being invested in call money market.
– Gilt funds ST
They invest 100% of their portfolio in government
securities of and T-bills.
– Floating rate funds
Invest in short-term debt papers. Floaters invest in debt
instruments which have variable coupon rate.
– Arbitrage fund
They generate income through arbitrage opportunities due
to mis-pricing between cash market and derivatives
market. Funds are allocated to equities, derivatives and
money markets. Higher proportion (around 75%) is put in
money markets, in the absence of arbitrage opportunities.
– Gilt funds LT
They invest 100% of their portfolio in long-term
government securities.

28
 – Income funds LT
Typically; such funds invest a major portion of the portfolio
in long-term debt papers.
– MIPs
Monthly Income Plans have an exposure of 70%-90% to
debt and an exposure of 10%-30% to equities.
– FMPs
Fixed monthly plan invest in debt papers whose maturity is
in line with that of the fund.

4.9 SNAPSHOT OF MUTUAL FUND SCHEMES

The following table summarizes different types of mutual fund

schemes, their objective, where do they invest and their suitability

Mutual Objective Risk Investme Who Investme

Fund nt should nt
Type Portfolio invest horizon
Money Liquidity + Negligible Treasury Those who 2 days - 3
Market Moderate Bills, park their weeks
Income + Certificate funds in
Reservatio of current
n of Capital Deposits, accounts
Commerci or short-
al Papers, term bank
Call Money deposits

29
 Short- Liquidity + Little Call Those with 3 weeks -
term Moderate Interest Money, surplus 3 months
Funds Income Rate Commerci short-term
(Floating al Papers, funds
- short- Treasury
term) Bills, CDs,
Short-term
Governme
nt
securities.
Bond Regular Credit Risk Predomina Salaried & More than
Funds Income & Interest ntly conservati 9 - 12
(Floating Rate Risk Debenture ve months
- Long- s, investors
term) Governme
nt
securities,
Corporate
Bonds
Gilt Security & Interest Governme Salaried & 1 year and
Funds Income Rate Risk nt conservati more
securities ve
investors
Equity Long-term High Risk Stocks Aggressive > 3 years
Funds Capital investors
Appreciatio with long
n term
outlook

Index To NAV varies Portfolio Aggressive > 3 years

Funds generate with index indices investors
returns performan like BSE,
that are ce NIFTY etc
commensu
rate with
returns of
respective
indices

30
Balanced Growth & Capital Balanced Moderate > 2 years
Funds Regular Market ratio of &
Income Risk and equity and Aggressive
Interest debt funds
Rate Risk to ensure
igher
returns at
lower risk
4.10 RISK HEIRARCHY OF DIFFERENT FUNDS
Thus, different mutual fund schemes are exposed to different levels of
risk and investors should know the level of risks associated with these
schemes before investing. The graphical representation hereunder
provides a clearer picture of the relationship between mutual funds and
levels of risk associated with these funds

31
 5. COMPANY PROFILE

VISION
“To be a dominant Player in the Mutual Fund space recognized
for its higher levels of ethical and professional conduct and a
commitment towards enhancing Investor Interests”.
HDFC Asset Management Company Ltd. has a vision of being a leading
player in the Mutual Fund business and has achieved

32
significant success and visibility in the market. Growth and visibility is
adhered to Good Conduct in the marketplace. At HDFC AMC, the
implementation and observance of ethical processes and policies has
helped them to stand up to the scrutiny of the domestic and
international investors.

MANAGEMENT
The management at HDFC AMC is committed to good Corporate
Governance, which includes transparency and timely dissemination of
information to its investors and unit holders. The HDFC AMC Limited
Board is a professional body, including well-experienced and
knowledgeable Independent Directors. Regular Audit Committee
meetings are conducted to review the operations and performance of
the company.

HDFC MF
HDFC Mutual Fund is one of the largest mutual funds and well-
established fund house in the country with consistent and above
average fund performance across categories since its incorporation on
December 10, 1999. While our past experience does make us a
veteran, but when it comes to investments, we have never believed
that the experience is enough.
HDFC Asset Management Company Ltd (AMC) was incorporated under
the Companies Act, 1956, on December 10, 1999, and was approved to
act as an Asset Management Company for the HDFC Mutual Fund by
SEBI vide its letter dated June 30, 2000.

In terms of the Investment Management Agreement, the Trustee has

appointed the HDFC Asset Management Company Limited to manage

33
the Mutual Fund. The paid up capital of the AMC is Rs. 25.161 crore.

INVESTMENT PHILOSOPHY
The single most important factor that drives HDFC Mutual Fund is its
belief to give the investor the chance to profitably invest in the
financial market, without constantly worrying about the market swings.
To realize this belief, HDFC Mutual Fund has set up the infrastructure
required to conduct all the fundamental research and back it up with
effective analysis. HDFC lays strong emphasis on managing and
controlling portfolio risk avoids chasing the latest “fads” and trends.

OFFERINGS
HDFC believes, that, by giving the investor long-term benefits, they
have to constantly review the markets for new trends, to identify new
growth sectors and share this knowledge with their investors in the
form of product offerings. They have come up with various products
across asset and risk categories to enable investors to invest in line
with their investment objectives and risk taking capacity. Besides, they
also offer Portfolio Management Services.

ACHIEVEMENTS
HDFC Asset Management Company (AMC) is the first AMC in India to
have been assigned the ‘CRISIL Fund House Level – 1’ rating. This is its
highest Fund Governance and Process Quality Rating which reflects the
highest governance levels and fund management practices at HDFC
AMC. It is the only fund house to have been assigned this rating for
third year in succession. Over the past, HDFC has won a number of
awards and accolades for their performance.

PRODUCTS

34
Equity/ Growth Fund
– HDFC mid Cap Opportunities Fund.
– HDFC Prudence Fund.
– HDFC Index Fund- Nifty Plan.
– HDFC Capital builder Fund.
– HDFC Infrastructure Fund.
– HDFC Long term advantage Fund.
– HDFC Index Fund- Sensex plus Plan.
– HDFC Core and Satellite Fund.
– HDFC Growth Fund.
– HDFC top 200 Fund.
– HDFC Index Fund- Sensex plan.
– HDFC Balanced Fund.
– HDFC Long term Equity Fund.
– HDFC Equity Fund.
– HDFC Premiere Multi-cap Fund.
– HDFC Arbitrage Fund.
– HDFC Tax saver (ELSS).

Children’s Gift Fund

– HDFC Children’s Gift Fund Savings Plan.
– HDFC Children’s Gift Fund Investment Plan.
HDFC Liquid Fund
– HDFC Cash Management Fund- Savings Plan.
– HDFC Liquid Fund Premier Plus Plan.
– HDFC Liquid Plan.
– HDFC Cash Management Fund- Call Plan.
– HDFC Liquid Fund Premier Plan.
Debt/Income Funds
– HDFC Floating rate Income Fund- Long term Plan.
– HDFC High Interest Fund- Short term Plan.

35
 – HDFC Multiple Yield Fund- Plan 2005.
– HDFC Cash Management Fund- Treasury Advantage
Fund.
– HDFC Gilt Fund- Short term Plan.
– HDFC Income Fund.
– HDFC Multiple Yield Fund.
– HDFC Short term Plan.
– HDFC Floating rate Income Plan- Short term Plan.
– HDFC MF Monthly Income Plan- Long term Plan.
– HDFC High Interest Fund.
– HDFC Gilt Fund- Long term Plan.

HDFC Quarterly Income Fund

HDFC Fixed Maturity Fund

MEASURING AND EVALUATING PERFORMANCE

Every investor investing in the mutual funds is driven by the motto of
either wealth creation or wealth increment or both. Therefore it’s very

36
necessary to continuously evaluate the funds’ performance with the
help of factsheets and newsletters, websites, newspapers and
professional advisors. If the investors ignore the evaluation of funds’
performance then he can loose hold of it any time. In this ever-
changing industry, he can face any of the following problems:

– Variation in the funds’ performance due to change in its

management/ objective.
– The funds’ performance can slip in comparison to similar funds.
– There may be an increase in the various costs associated with
the fund.
– The funds’ ratings may go down in the various lists published by
independent rating agencies.
– It can merge into another fund or could be acquired by another
fund house.

Performance measures
Equity funds- The performance of equity funds can be measured on
the basis of: NAV Growth, Total Return; Total Return with
Reinvestment at NAV, Annualized Returns and Distributions, Computing
Total Return (Per Share Income and Expenses, Per Share Capital
Changes, Ratios, Shares Outstanding), the Expense Ratio, Portfolio
Turnover Rate, Fund Size, Transaction Costs, Cash Flow, Leverage.

Debt fund- The performance of debt funds can be measured on the

basis of: Peer Group Comparisons, The Income Ratio, Industry
Exposures and Concentrations, NPAs, besides NAV Growth, Total Return
and Expense Ratio.

37
Liquid funds- The performance of the highly volatile liquid funds can
be measured on the basis of: Fund Yield, besides NAV Growth, Total
Return and Expense Ratio.

DISTRIBUTION CHANNELS
Mutual funds posses a very strong distribution channel so that the
ultimate customers doesn’t face any difficulty in the final procurement.
The various parties involved in distribution of mutual funds are:
Direct marketing by the AMCs: The forms could be obtained from
the AMCs directly. The investors can approach to the AMCs for the
forms. Some of the top AMCs of India are; Reliance ,Birla Sun life, Tata,
SBI magnum, Kotak Mahindra, HDFC, IDFC, ICICI, LIC, AXIS etc. whereas
foreign AMCs include: Standard Chartered, Franklin Templeton, Fidelity,
JP Morgan, HSBC, DSP Merill Lynch, etc.
Broker/ sub broker arrangements: The AMCs can simultaneously go
for broker/sub-broker to popularize their funds. AMCs can enjoy the
advantage of large network of these brokers and sub brokers.
Individual agents, Banks, NBFC: Investors can procure the funds
through individual agents, independent brokers, banks and several
non- banking financial corporations too, whichever he finds convenient
for him.

38
COSTS ASSOCIATED
Expenses
AMCs charge an annual fee, or expense ratio that covers administrative
expenses, salaries, advertising expenses, brokerage fee, etc. A 1.5%
expense ratio means the AMC charges Rs1.50 for every Rs100 in assets
under management. A fund's expense ratio is typically to the size of
the funds under management and not to the returns earned. Normally,
the costs of running a fund grow slower than the growth in the fund
size - so, the more assets in the fund, the lower should be its expense
ratio

Loads
Entry Load/Front-End Load (0-2.25%) - It’s the commission charged
at the time of buying the fund to cover the cost of selling, processing
etc however the RBI has waived off this charge w.e.f 1 Aug 2009.
Exit Load/Back- End Load (0.25-2.25%) -It is the commission or
charged paid when an investor exits from a mutual fund; it is imposed
to discourage withdrawals. It may reduce to zero with increase in
holding period.

39
WHY HAS IT BECOME THE LARGEST AND ATTRACTIVE
INVESTMENET INSTRUMENT?
If we take a look at the recent scenario in the Indian financial market
then we can find the market flooded with a variety of investment
options which includes mutual funds, equities, fixed income bonds,
corporate debentures, company fixed deposits, bank deposits, PPF, life
insurance, gold, real estate etc. All these investment options could be
judged on the basis of various parameters such as- return, safety
convenience, volatility and liquidity. Measuring these investment
options on the basis of the mentioned parameters, we get this in a
tabular form:
Return Safety Volatility Liquidity Convenienc
e
Equity High Low High High Moderate
Bonds Moderate High Moderate Moderate High
Co. Moderate Moderate Moderate Low Low
Debentures
Co. FDs Moderate Low Low Low Moderate
Bank Low High Low High High
Deposits
PPF Moderate High Low Moderate High
Life Low High Low Low Moderate
Insurance
Gold Moderate High Moderate Moderate Gold
Real Estate High Moderate High Low Low
Mutual High High Moderate High High
Funds

40
We can very well see that mutual funds outperform every other
investment option. On three parameters:
– It scores high whereas it’s moderate at one.
– Comparing it with the other options, we find that equities gives
us high returns with high liquidity but its volatility too is high with
low safety which doesn’t makes it favorite among persons who
have low risk- appetite.
– Even the convenience involved with investing in equities is just
moderate.

Now looking at bank deposits, it scores better than equities at all fronts
but lags badly in the parameter of utmost important i.e.; it scores low
on return , so it’s not an appropriate option for person who can afford
to take risks for higher return. The other option offering high return is
real estate but that even comes with high volatility and moderate
safety level, even the liquidity and convenience involved are too low.
Gold have always been a favorite among Indians but when we look at it
as an investment option then it definitely doesn’t gives a very bright
picture. Although it ensures high safety but the returns generated and
liquidity are moderate. Similarly the other investment options are not
at par with mutual funds and serve the needs of only a specific
customer group. Straightforward, we can say that mutual fund
emerges as a clear winner among all the options available. The reasons
for this being:

Mutual funds combine the advantage of each of the investment

products
Mutual fund is one such option which can invest in all other investment
options. Its principle of diversification allows the investors to taste all
the fruits in one plate. Just by investing in it, the investor can enjoy the
best investment option as per the investment objective.

41
Dispense the shortcomings of the other options
Every other investment option has more or les some shortcomings.
Such as if some are good at return then they are not safe, if some are
safe then either they have low liquidity or low safety or both, likewise,
there exists no single option which can fit to the need of everybody.
But mutual funds have definitely sorted out this problem. Now
everybody can choose their fund according to their investment
objectives.
Returns get adjusted for the market movements
As the mutual funds are managed by experts so they are ready to
switch to the profitable option along with the market movement.
Suppose they predict that market is going to fall then they can sell
some of their shares and book profit and can reinvest the amount again
in money market instruments.

Flexibility of invested amount

Other then the above mentioned reasons, there exists one more reason
which has established mutual funds as one of the largest financial
intermediary and that is the flexibility that mutual funds offer regarding
the investment amount. One can start investing in mutual funds with
amount as low as Rs. 500 through SIPs and even Rs. 100 in some
cases.

42
43
 RESEARCH STUDY

RESEARCH DESIGN

44
6.1 Introduction
The project consisted of working mainly two Banking Channels HDFC
Bank and DBS Bank in Pune, chosen for the survey. The reason for
choosing these two particular Banking Channel is that they have lot of
potential and were amongst the highest revenue generator for HDFC
AMC. It consisted of three stages:

Stage 1: Gathering data from the company and plan schedule to meet
the concerned person.
Stage 2: Collecting the data by survey method, on the basis of
questionnaire.
Stage 3: Analyzing and interpreting the primary data collected.

6.2 Review of Literature

Study Literature given from the company was studied in order to gain an
insight of past market and future prospects of mutual fund industry. Also
the requirements of various concepts were understood using the help of
internet and various other books.

6.3 Type of Research

It is a framework or blueprint for conducting the marketing research
project. The research design used here is Descriptive Research
Design which is used for description of something. Here it is used to
describe the characteristics of Existent and Potential Customers with
respect to the services expected HDFC AMC.

6.4 Data Collection Technique

The survey method of collecting data is based on the questioning of
respondents. They were asked variety of questions regarding their
behavior, intensions, attitude, awareness and motivations. In
Structured data collection, a formal Questionnaire is prepared thus
the process is direct. The questionnaire designed for this project consists
of questions based on various parameters which a relationship manager

45
would consider before selling a mutual fund. Each question is based on
different variables like investment decisions, selling decisions, company
policies, serving issues etc.
6.5 Scope of the study
The research was carried on in the Pune Region of Maharashtra. It is
restricted to Pune where it has got its head office at Shivaji Nagar and
operates or sells its products through a large network of Distribution
Channels. I have visited people randomly while pitching for products and
also existing customers of HDFC and DBS (Development Bank of
Singapore).

6.6 Data sources

Research is totally based on primary data. Secondary data can be used
only for the reference. Research has been done by primary data
collection, and primary data has been collected by interacting with
various people. The secondary data has been collected through various
journals and websites and some special publications of HDFC AMC.

6.7 Sampling procedure

The sample is selected in a random way, irrespective of them being

investor or not or availing the services or not. It was collected through
mails personal visits to the known persons, by formal and informal talks
at HDFC Bank and DBS Bank and through filling up the questionnaire
prepared. The data has been analyzed by using the measures of central
tendencies like mean, median, mode. The group has been selected and
the analysis has been done on the basis statistical tools available.

6.8 Sample size

The sample sizes of my project is limited to 100 only and have got

46
questionnaires filled only with the ones who invest in various other and
HDFC AMC’s however have taken different opinions as to why certain
people or respondents are not Investing in the current Market Scenario.

6.9 Technique of analysis

Percentage analysis was used to analyze the data collected.

6.10 Statistical tools used for Data presentation

Data has been presented with the help of bar graph, pie charts, line
graphs etc.

6.11 Limitations

– Time limitation.

– Research has been done only at Pune.

– Some of the persons were not so responsive.

– Possibility of error in data collection.

– Possibility of error in analysis of data due to small sample

size.

47
7. DATA ANALYSIS
7.1 Have you ever invested/ interested to invest in mutual
funds?
YES 100
NO 0

YES
NO

Graph 7.1
DATA INTERPRETATION
Analysis is carried on only for those respondents who are already
Investing in Mutual Funds and the reasons for not Investing( Non Investors)
citied while filling or while interacting with the respondents were

• Lack of Knowledge about Mutual Funds.

• Enjoy Investing in other financial instruments.
• Its benefits are not that lucrative or better than other instruments.
• No trust over the schemes.

48
 • No trust over the Fund manager or AMC.
• Current Market scenario.
• Complex KYC procedure.
• PAN Card a Mandate.

7.2 In which of the following type funds you have invested?

Equity 18
Debt 23
Balanced 29
ELSS 30
Gilt 0

Graph 7.2

DATA INTERPRETATION
18% of the respondents have Invested in Equity Funds, 23% have
invested in Debt Schemes while 29% and 30% have invested in Balanced
and ELSS schemes respectively.

FINDINGS
Respondents in the Current market scenario have Invested mostly in
49
Balanced schemes which give leverage to their investments and have
switched their investments to balances or debt schemes in the recession
period because it helps them to accumulate more Units as the NAV’s are
low.
Respondents who have invested in Tax saving schemes have a Lock in
period of 3 years so they still are continuing to invest in Recession period
as it gives them leeway in terms of saving Tax over a period of time.

50
7.3 Preferred Investment Period?

Less than 1 Year 2

1 to 3 years 42
3 to 5 years 41
More than 5 years 15

Graph7.3
DATA INTERPRETATION
42% prefer to stay invested for a period of 1-3 years, while 41% for the
period of 3-5 years and 15 % for more than 5 years and only 2% stay
invested for less than a year.
FINDINGS
It was found out that most Respondents have either invested for a time
spam of 1 to 3 years or more than 5 years. Investment period purely and
solely depends on the Investment Objective and the Schemes thus
chosen. Respondents who have invested in Equity diversified funds have
invested for a time spam of 1-3 years and Debt schemes customer

51
usually invest for a period of 3 to 5 years and ELSS customers have to
invest in a lock in period of 3 years so they opt for 3 year Investment
strategy.
7.4 AMC in which money is Invested?

Kotak 6
Reliance 8
HDFC 36
SBI 16
DSP Black Rock 5
DSP M Lynch 6
ICICI 15
Religare 6
IDFC 2

Graph 7.4

DATA INTERPRETATION

36% have Invested with HDFC AMC, 16% with SBI and 15% with ICICI
Securities, 8% have invested with Reliance AMC and the rest 6%, 5%,
6% and 2% have invested with other AMC’s such as DSP, Kotak,
Religare, IDFC etc.

52
FINDINGS

It was found out that Respondents have not invested in a particular

AMC or their Portfolio is managed by single AMC. They have
simultaneously invested in two AMC’s and the ones which are popular
are HDFC and ICICI and the others have got place in the reckoning.

53
7.5 Which according to you are the factors important while
investing in Mutual Funds?

Risk factor 8
Returns 9
Tax savings 9
Performance if the particular 9
Fund
NAV 10
AMC 10
Safety 11
Ratings of a particular fund 11
Portfolio of the Fund 11
Profile of the Fund Manager 12

54
 Graph 7.5

DATA INTERPRETATION
12% say that profile of Fund manager is an important element, 11%
prefer safety, portfolio and Ratings of the fund to be an Important
factor,while 10% say services by the AMC and the NAV value play an
Important role and rest of them prefer investing to safe tax and look at
returns over a short period of time.

FINDINGS
Different Investors have different needs for Investment purposes.
However people if Investing in Equtiy Instruments would look for better
returns in a short spam of time as it carries equal risk.
And other factors which are considerate with the investement purposes
would be Performance or Rating of a Particular Fund and Fund manager
also plays a important role as generally people invest in funds keeping

55
in mind the profile of the Fund Manager and for Instance Prashant Jain
who is a pass out of IIT and has done is MBA from IIM having over 14
years of experience in Equity research market has lot of funds in his
Kitty to manage.

7.6 Preferred Channels through which Investments are made?

Directly through AMC 27

Through Distributor 40
Broker/ Sub Broker 33

56
 Graph 7.6

DATA INTERPRETATION

27% dodge entry load and prefer to invest directly through AMC, while
33% prefer to Invest through a Sub- broker who can manage their
portfolio’s and 40% invest it through authorized Distributors.

FINDINGS

It was found out that most Investors usually invest through Brokers or
Distributors because they get the advantage of having statements on
timely basis and also switching or redeeming of funds becomes an ease
as they are just a phone call away.

They can easily review they portfolio and seek Investment

recommendation in order to suffice their short term needs and also to
manage their assets.

57
However all of this comes with a charge which is usually known as
Commission charged in the form of Entry Load which is usually
between 0-2.5% for retail customers and there are few who manage
their own portfolio and invest directly through the AMC’s and the entry
load or the commission charge is weaved off for those Investors.

58
7.7 Have you invested in the current Recession period?

YES 38
NO 62

59
 Graph 7.7

DATA INTERPRETATION
62% say no that they rather prefer to stay out the stock markets during
Recession and 38% want to enjoy the benefit of Rupee cost averaging
that’s why they haven’t redeemed their Units.

FINDINGS
It was observed that people are not investing the current market
scenario as it is hard of them to believe that the market is facing a U
shaped recovery mode where in the positivity will be reflected in the
Market over the period of time as per the new Changes and
Amendments bought in by the new UPA Govt. However Existing
customers have also redeemed or switched their funds as they lost a
lot of money in the year 2008.
However there are some Investors who are positive about the Market
and have Switched to Balanced funds because that helps them fetch
more units as the NAV is low and have Invested money in the NFO’s
that were out in the market for e.g. Reliance Infrastructure fund and
DSP Black Rock World Energy Fund.

60
7.8 In the recession period which type of funds are the best
option?
Equity Diversified 4
Debt 8
Balanced 60
Tax Saving Schemes 28

61
 Graph 7.8

DATA INTERPRETATION
In recession period 60% of the respondents prefer to stay invested with
Balanced schemes while 28% are with ELSS schemes and 8% have
invested in Debt Schemes while only 4% have Invested in Equity
schemes.

FINDINGS
It is observed that most of the Investors during the recession period
have taken a step back in terms of Investments in Mutual Funds as the
share market saw an Impeccable down fall last year and had lost a lot
of money last year.
However what is more promising is the confidence amongst these
Investors who are betting on an attitude that shows a sign of recovery
for the market right now and have kept their fingers crossed in terms of
Promises by the Congress.
So either balanced schemes are the one’s for a safe bet right now or
else tax saving schemes have always given investors a leeway under
Section 80©.

62
63
7.9 Other Financial Instruments that are a safe bet right now?

Bank FD’s 14
NBFC’s 17
PPF 19
NSC’s 21
ULIP 29

64
 Graph 7.9
DATA INTERPRETATION
14% prefer to park their money with FD’s, 29% prefer to stay
connected with ULIP’s as that gives them benefit of saving tax and 21%
prefer to invest in NSC’s and 19% and 17% prefer to Invest with PPF’s
and NBFC’s.

FINDINGS
Bank FD’s are one of the means for the different banks to get NTB’s
and helps investors to park their money for a spam of 1-2 years in
attractive FD’s thus offered. However after maturity is the main Game
Plan through which Banks anticipate to invest the same in the Equity
markets after they take a respectable position. It scores better than
equities at all fronts but lags badly in the parameter of utmost
important i.e.; it scores low on returns. ULIP schemes have sustainably
taken a peek in the recession period where in they not only provide
leverage to one’s investment in debt and equity market but also
insurance for a life time.

65
66
RESEARCH CONCLUSIONS

67
• At the survey conducted upon approx 100 people, most of them
are already mutual fund investors or are interested to invest in
future and the remaining are not interested in it. So there is
enough scope for the advisors to convert those leads into
potential investors through their offerings and services.

• Now, when people were asked about the reason for not investing
in mutual funds, then most of the people held their ignorance
responsible for that. They lacked knowledge and information
about the mutual funds. Whereas just few people enjoyed
investing in other option. For few people, the benefits arousing
from these investments were not enough to drive them for
investment in MFs and few of them expressed no trust over the
fund managers’ decision. Again the financial advisors can tap
upon these people by educating them about mutual funds.

• Out of the people who already have invested in mutual funds/ are
interested to invest, only few have sound knowledge of MFs, and
few have a sound knowledge of the mutual funds and its
operations and thereby prefer to Invest it directly through the
AMC’s and maintain their own Portfolio’s. However it is important
to realize that a lot of investors are aware of the schemes and
the operations of the Indian Market but prefer a Financial Advisor
to cater to their Investment Objectives as they are well versed
with the markets and are qualified advisors to recommend them

68
 on Investment strategies with minimal Commission co-
responding to the portfolio managed.

• When asked about the most alluring feature of MFs during the
current market conditions, most of them opted for diversification,
followed by reduction in risk, helps in achieving long term goals
and helps in achieving long term goals respectively and also
helps them in terms of Tax saving benefits.

• The other financial instruments that are a lucrative option for the
Investors in the recession are ULIP plans, NSC’s, Bank FD’s
however are not in the same reckoning of Mutual funds in terms
of returns.

RECOMMENDATIONS

69
• The most vital problem spotted is of ignorance. Investors should
be made aware of the benefits and the current status of
Economy. Nobody will invest until and unless he is fully
convinced of the future of one’s Investments. Investors should be
made to realize that ignorance is no longer bliss and what they
are losing by not investing.
• Mutual funds offer a lot of benefit which no other single option
could offer. But most of the people are not even aware of what
actually a mutual fund is? They only see it as just another
investment option. So the advisors should try to change their
mindsets. The advisors should target for more and more young
investors. Young investors as well as persons at the height of
their career would like to go for advisors due to lack of expertise
and time.
• The advisors may try to highlight some of the value added
benefits of MFs such as tax benefit, rupee cost averaging, and
systematic transfer plan, rebalancing etc. These benefits are not
offered by other options single handedly. So these are enough to

70
 drive the investors towards mutual funds. Investors could also try
to increase the spectrum of services offered.
• Now the most important reason for not availing the services of
Banking Channel; was being expensive. The advisors should try
to charge a nominal fee at the beginning. But if not possible then
they could go for offering more services and benefits at the
existing rate. They should also maintain their Banking Channels
should try to attract more and more persons and turn them into
investors and finally their clients.
• With the globalize economy and immense competition among
countries for faster development of their respective economies,
the significance of Mutual Funds and Foreign investment has
taken manifold. With a buoyant vibrant and experienced stock
market, India today is looking ahead to surpass China in terms of
foreign Investment and growth prospects. Stock exchange being
the barometer of the economy plays a vital role in showcasing
growth of an economy and luring investment.
• While studying the role of Mutual fund and FIIs in Stock Market, I
discussed with a few persons who are into stock broking
business. And the information they have provided shows that
though the investment and participation of domestic investors
are rising, still, they have not been able to prove themselves to
be as influential as mutual funds and FIIs.
• Importance and the role of Mutual funds and FIIs play in the
Indian stock market can be seen from the fact that the recent
surge in Sensex and NIFTY is attributed to the active Participation
of FIIs in the Stock Market. Despite being aware of the Asian
economic crisis where FIIs role was of a major concern, the
importance of foreign capital in the development of economy can
not be undermined in anyway so the people more emphasis on
mutual fund to earn more return increasing our benefit .

71
72
 ANNEXURE

Exhibit 1

QUESTIONNAIRE

1. Have you ever invested in mutual funds?

a. Yes

b. No

2. In which of the following type funds you have invested?

a. EQUITY

b. DEBT

c. BALANCED

d. GILT

73
 e. TAX SAVING SCHEMES

3. What is your preferred investment period?

a. Less than 1 yr

b. 1 yr—3yr

c. 3 yr—5yr

d. more than 5 yr

4. Which AMC you have invested in?

Please specify

5. Rank according to importance the factor you look for while investing
in MF

(1 being the most important and 5 the least important)

a. Risk factor

b. Return

c. Tax saving

d. Performance

e. NAV

f. AMC

g. Safety

h. Ratings of the fund

i. portfolio of fund

j. Profile of the Fund manager

74
6. How have you invested in MF?

a. Directly

b. Through Distributor

c. Through Sub-brokers/Brokers.

7. Have you invested or would you like to invest in the current period?

a. Yes

b. No

8. If yes then rank in 1-5 (with 1 being best and 4 being worst) of the
following options

a. Mutual funds are no doubt the best investment option in

spite of the current economic slowdown

b. I am getting more units as NAV is low, so I will definitely

earn profit when market goes up.

c. Mutual fund are still giving better return for longer

period( 5yrs) than other investment option

d. Despite all the slowdown, I will prefer MF as it gives me tax

benefit

9. If yes in which kind of fund you will prefer to invest now?

a. Equity

b. Debt

c. Balanced

d. Tax savers

75
 e. ETFs

10. Which is your preferred mood of investment in mutual fund?

a. Lump sum b. SIP (Systematic Investment

Plan)

11. Rank the option which u think best describe your views ( 1 being
the best & 5 being worst)

i. I will better invest in FDs of Banks in this condition as it is

the safest

ii. I will invest in FDs of NBFC as they give better interest

iii. I will go for PPF

iv. I will invest in NSC

v. I will put my money in ULIPs because it will give me

insurance cover.

Bibliography

Websites
www.the-finapolis.com
www.mutualfundsindia.com
www.valueresearchonline.com
www.moneycontrol.com
www.morningstar.com
www.yahoofinance.com
www.theeconomictimes.com
www.rediffmoney.com
www.bseindia.com
www.nseindia.com
www.investopedia.com

Journals & other references

HDFC AMC manual
The Economic Times

76
Business Standard
The Telegraph
Business India
Fact sheet and statements of various fund houses

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