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Globalization and its Meaning

Broadly speaking, the term globalization means integration of economies and

societies through cross country flows of information, ideas, technologies, goods, services,

capital, finance and people. Cross border integration can have several dimensions

cultural, social, political and economic. In fact, some people fear cultural and social

integration even more than economic integration. The fear of cultural hegemony

haunts many. Limiting ourselves to economic integration, one can see this happen

through the three channels of (a) trade in goods and services, (b) movement of capital and

(c) flow of finance. Besides, there is also the channel through movement of people.

Globalization has ensured that the Indian economy and financial markets cannot stay

insulated from the present financial crisis in the developed economies. Indian companies

which had access to cheap foreign currency funds for financing their import and export

will be the worst hit. The impact on the financial markets will be the following: Equity

market will continue to remain in bearish mood with reduced off-shore flows, limited

domestic appetite due to liquidity pressure and pressure on corporate earnings; while the

inflation would stay under control, increased demand for domestic liquidity will push

interest rates higher and we are likely to witness gradual rupee depreciation and depleted

currency reserves. Overall, while RBI would inject liquidity through CRR/SLR cuts,

maintaining growth beyond 7% will be a struggle.

In India we have market crashes, recessions, depressions, runs on banks, bankruptcies of

countries....in the last 40 years we have participated in an incredible array of financial

crises from the oil shock, LDC crisis, 21% interest rates in 1981, commercial real estate

debacle, 1987 and 1991 market crash, Asian currency crises of 1999, dot com bubble

bursting and so on. However, in none of those events was confidence in the pillars

eroded...now it is in shambles. We rose up from the earlier crises stronger than before,

however, this time the very pillars have been demolished.

For countries like India which are in need of capital to initiate projects to build

infrastructure the situation has grown grim. . The problem is not just money and losses; it


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is the discrediting of Accounting firms, Rating agencies and Regulators that will haunt

this post Crisis world.

UNDERSTANDING MUTUAL FUND

Mutual fund is a trust that pools money from a group of investors (sharing common

financial goals) and invest the money thus collected into asset classes that match the

stated investment objectives of the scheme. Since the stated investment objectives of a

mutual fund scheme generally form the basis for an investor's decision to contribute

money to the pool, a mutual fund can not deviate from its stated objectives at any point of

time.

DEFINITION :

The securities and exchange board of India regulations.1993 defines a mutual fund as

a fund established in the form of a trust by a sponsor, to raise monies by the trustees

through the sale of units to the public, under one or more schemes, for investing in

securities in accordance with these regulations.


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PRIMARY OBJECTIVES:

To analyze the reasons for financial crisis and its impact on performance of mutual fund.

SECONDARY OBJECTIVES:

To analyze the investors perception towards financial crisis

To identify the factors which influences the financial crisis.

To analyze the impact of financial crisis on the performance of mutual fund

Research Methodology

Questionnaire

A well structured questionnaire was framed to obtain investors opinion on financial

crisis and its impact on mutual fund.

Sources of data

Primary data: Primary data was collected by administering the structured questionnaire

and interview with the respondents.

Secondary data: -

Secondary data is obtained from website of different operators, different magazines,

newspapers and libraries, internet.

Sample size: -

The sample size is 50 respondents.

Method of sampling: Convenient Random sampling method was adopted to collect

information from the study.

Tools used:

Chi-square test method

LIMITATION OF THE STUDY

The sample size is limited i.e. 50 respondents only.

Due to financial crisis more number of investors are threatened to invest in most

of the investment. Though mutual funds are having several profit seeking funds there are some poor

performance in returns fund also available.

FINANCIAL CRISIS:

The term financial crisis is applied broadly to a variety of situations in which some

financial institutions or assets suddenly lose a large part of their value. In the 19th and


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early 20th centuries, many financial crises were associated with banking panics and

many recessions coincided with these panics. Other situations that are often called

financial crises include stock market crashes and the bursting of other financial

bubbles, currency crises and sovereign defaults and so on.

The main reasons for the present financial crisis are as follows:

1. Boom and burst in the housing market

2. speculation

3. High risk mortgage loans lending/borrowing practices

4. Inaccurate credit ratings

5. Government policies

6. Policies of central bank

7. Financial Institutions debt level and incentives

8. Credit default swaps

Global Financial crisis and India

Indian economy has been hurt by the global financial crisis like:

1. Reduction in capital flow

2. Slow down in the sectoral growth

3. Drying up of liquidity

4. Adverse effect on our export of goods and services

5. Decline in the internal accruals of the corporate,

6. 51 million to be rendered jobless soon

The global financial crisis is one of 5 major crisis coming together:

1. Economic (system breakdown)

2. Environmental (global warming and other problems)

3. Cultural (intolerance, clash of religions, Western cultural dominance)

4. Political (democratic deficits everywhere, lack of hope and political interest in

media and among young)

5. Security (drug-like, ever increasing military expenditures to satisfy the Military-

Industrial-Media-Academic Complex, MIMAC yielding ever less human

security).


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Factors influencing Financial crisis

Factors S.A(5) A(4) N(3) D.S(2) S(1)

US RECESSION 20 25 5 0 -

INFLATION RATE 40 0 10 0 -GLOBAL MARKET 0 40 10 0 -

MORE BORROWINGS 35 10 0 5 -

CORPORATE FAILURE 0 20 20 10 -

ECONOMY SLOW DOWN 0 10 20 5 -

BANKRUPTCY 35 25 0 0 -

EXCHANGE RATE 0 10 40 0 -

GOVERNEMT POLICY 0 10 20 0 -

Factors influencing financial crisis

0%

20%

40%

60%

80%

100%

1 2 3 4 5 6 7 8 9

Different factors

Differentviews

D.S(2)

N(3)

A(4)

S.A(5)

A -- AGREE, N ---- NEUTRAL, D.S----- DISAGREE, S - STRONGLY DISAGREE

Interpretation

The table shows that the reason for financial crisis has been graded and their ranks areBankruptcy 1, US recession and More borrowings 2, globalization 3.


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FUNDS H(5) A(4) I(3) L.A(2

)

N.E

LIQUDITY 45 5 0 0CREDIT AVAILABILITY 30 20 0 0

GLOBAL ECONOMY 0 20 30 0

CASH FLOW MOVEMENT 20 20 10 0

INDIAN ECONOMY 15 10 15 5

WEALTH 5 35 5 0

EMPLOYABILITY 0 5 15 15

CAPITAL INVESTED 0 35 20 0

INVESTMENT IN FIXED

DEPOSIT0 25 20 5

INVESTMENT IN SHARES 45 5 0 0

INVESTMENT IN MUTUAL

FUND35 15 0 0

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Respondents'

view

1 2 3 4 5 6 7 8 9 10 11 12

Affected areas

Impact of financial crisis

L.A(2)

I(3)

A(4)

H(5)


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H -- HIGHLY AFFECTED, A --- AFFECTED, I --- INDIFFERENT,L.A--- LEASTAFFECTED, N.E-- NO EFFECT

InterpretationThe above table shows that the impact of financial crisis has been ranked and theirposition are investments in shares, in mutual fund, liquidity and credit availability are

highly affected, wealth, cash flow movement are affected secondly

Comparison between Age group and their Level of risk

AgeHighrisk

Mediumrisk

Lowrisk

Total

20-30 2 6 2 10

30-40 10 10 10 30

40-50 2 1 2 5

50 & above 1 3 1 5

Total 15 20 15 50

COMPARISON BETWEEN AGE WITH RISK

0

2

4

6

8

10

12

20-30 30-40 40-50 50 & above

AGE

LEVELOFRISK

HIGH

MED

LOW

H0:there is no significant difference between age group and their level of

risk

H1:there is significant difference between age group and their level of risk

E= row total *column total

grand total

O E (O-E)2 (O-E)2 /E


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2 3 1 0.33

10 9 1 0.11

2 1.5 0.25 0.16

1 1.5 0.25 0.16

6 4 4 1

10 12 4 0.33

1 2 1 0.5

3 2 1 0.5

2 3 1 0.33

10 9 1 0.11

2 1.5 0.25 0.16

1 1.5 0.25 0.16

3.88

Degree of freedom = (r-1) (c-1)

= (4-1) (3-1)

= (3) (2)

Degree of freedom = 6

Table value @5% = 12.592

calculated value = 3.88

Hence we accept ourHO. There is no significant difference between age group

and their level of risk

FINDINGS

The analysis shows that 50% of people have no idea of investing now and 50%

does not want to invest in mutual fund, because of the level of risk duringrecession .

The current market seems to be very fair and moderate.

Financial crisis is mainly due to the bankruptcy and US Recession. Many

suggested that this is the strongly agreeable factor for financial crisis.

In the current market position most of the investors are willing to take risk at a

moderate level only.

All the investors are preferring only steady returns at long term, because they

want to play in safe.

SUGGESTIONS

Soon the financial crisis problem will be overcome.


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Finally the financial crisis had affected so much of people in the whole world

even some people had lost their wealth. Mutual fund was affected very much

too, because mutual funds returns are calculated from the sensex ups and down.

CONCLUSION

The global financial crisis expected to last for "several more quarters", the International

Monetary Fund has called for a large and timely fiscal stimulus with targeted tax cuts,

increased spending and even insurance cover from governments.

To deal with recession governments attempt to stimulate the economy. By

Increase borrowing,

Reduce interest rates,

Reduce taxes, and

Spend on public works such as infrastructure

Though we have negative Impacts of recession like Unemployment: Job losses,

Deterioration in purchasing power, Slowdown in economic activity India may be able to

turn this crisis into a permanent place at a new high table," India is one of the Emerging

economic superpowers of the future. That is bcos Asian savings may have provided

the rope; but America hanged itself.

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