3. Objective Of The Study

4. Definition Of Mutual Funds

6. Structure Of Mutual Funds

7. Types Of Mutual Funds

8. Objectives Of Mutual Funds

9. Benefits Of Mutual Fund Investment

10. Disadvantages Of Mutual Funds

11. Risks in mutual funds

13. Investor Protection And Mutual Funds Regulation

14. Reliance Mutual Funds

15. Case Study

16. Recommendations

17. Conclusion

OBJECTIVE OF THE STUDY:

To study the awareness of market.

To study the concept of mutual fund.

Through understanding of mutual fund with the help of case study.

To identify the consumer behavior towards mutual funds.

To develop model portfolios based on clients profile and requirements.

To identify the consumer buying process of mutual funds.

To identify the factors which influence the customers to purchase mutual

funds?

To identify the match between company’s strategy to sell the mutual

funds and customers requirement.

To do a comparative analysis between Lump sum investments &

Systematic Investment plan.                     

To give recommendation to the company on the basis of study for future

course of action.

Definition of mutual fund

A mutual fund is an entity that pools the money of many investors or unit-

holders to invest in different securities like shares, debt securities, money

market securities or a combination of these. These securities are professionally

managed on behalf of the unit-holders, and each investor is entitled to any

profits when the securities are sold, but subject to any losses in value as well.

Mutual Fund Operation Flow Chart

Structure of Mutual Fund

The structure of mutual funds in India is governed by the SEBI regulations

1996.

The structure of mutual fund in India constitutes the following

Sponsor

Trustee

Asset Management Company

Custodians

Registrars and Transfer Agents

Distributors and Selling Agents

Legal Advisors

SPONSOR:

The sponsor is the promoter of mutual fund. It establishes the fund and registers

it with SEBI. The sponsor appoints the trustees, custodians and the AMC with

approval of SEBI, and in accordance with SEBI regulations. The sponsor is

required to contribute at least 40% of the minimum net worth (Rs. 10 crore) of

the asset management company. The sponsor executes the trust deeds in favor

of the trustees.

TRUSTEE:

The mutual fund needs to be constituted in the form of a trust and the

instrument of the trust should be in the form of a deed registered under the

provisions of the Indian Registration Act, 1908. If it is a company then it is also

subject to the Indian Companies Act. It is the responsibility of the trustee to

protect the right of the investors, whose fund is managed by the AMC. There

must be at least 4 members in the board of trustees and at least 2/3rd of the

members of the board of trustees must be independent. Trustees must furnish to

SEBI, on half yearly basis, a report on the activities of the AMC.

ASSET MANAGEMENT COMPANY (AMC):

Trustees, on the advice of the sponsors appoint the AMC. The trust is the

mutual fund; the AMC is its operational face. The AMC is usually a private

limited company, in which the sponsors and their associates are joint venture

partners. AMC must have a minimum net worth of 10 crores at all times. The

AMC structures the mutual fund products, markets them and mobilizes the

funds, manages the funds and services the investors.

Various types of AMCS in India are as follows:

a. AMCS owned by banks

b. AMCS owned by financial institutions

c. AMCS owned by the Indian private sector companies

d. AMCS owned by foreign institutional investors

e. AMCS owned jointly by Indian and foreign sponsors

CUSTODIANS:

A custodian provides the following services to the mutual fund:

Post-trading and custodial services to the Mutual Fund.

Ensure that the benefits due on the holdings are received on time.

Detailed management information and other reports as required by the

AMC.

Maintain confidentiality of the transactions.

Be responsible for the loss or damage to the assets belonging to the

Scheme due to negligence on its part or on the part of its approved agents

and segregate assets of each Scheme.

REGISTRARS and TRANSFER AGENTS(R&T Agent):

The R&T agents are responsible for the investor servicing functions, as they

maintain the records of investor in mutual funds. R&T agents handle the

communications with investors, perform data entry services, and maintain

investor data and dispatches Account Statements reflecting the holding and

transactions of the investors.

DISTRIBUTORS and SELLING AGENTS:

Mutual fund products are reached to investors across the country through

distributors and selling agents.

Agents are individuals who bring in investor’s funds for a commission

Distributors are institutions that appoint agents and other mechanisms to

mobilize from investors. Most agents and distributors are paid commissions on

the funds they mobilize from investors.

LEGAL ADVISORS:

Legal advisors advise mutual funds on regulatory and taxation issues. Every

mutual fund has an employee designated as compliance officer, who work under

the advice of legal advisor.

TYPES OF MUTUAL FUNDS:

Most funds have a particular strategy they focus on when investing. For

instance, some invest only in Blue Chip companies that are more established

and are relatively low risk. On the other hand, some focus on high-risk startup

companies that have the potential for double and triple digit growth. Finding a

mutual fund that fits your investment criteria and style is important.

OBJECTIVES OF MUTUAL FUNDS

The objectives of mutual funds are presented below:

• To provide a better opportunity to low income group investors

• To provide a better expertise, talent, skillful, scientific, approach towards

stock market activities.

• To manage small investors’ portfolio that provides regular income growth

safety liquidity and diversification.

Benefits of Mutual Fund investment

Professional investment management – One of the primary benefits of

mutual funds is that an investor has access to professional management.

A good investment manager is certainly worth the fees you will pay.

That is because Mutual funds hire full-time, high-level investment

professionals. on the largest and most cost-effective scale.

Diversification – A crucial element in investing is asset allocation. It plays a

very big part in the success of any portfolio. However, small investors do not

have enough money to properly allocate their assets. By pooling your funds

with others, you can quickly benefit from greater diversification. Mutual funds

invest in a broad range of securities. This limits investment risk by reducing the

effect of a possible decline in the value of any one security.

Low Cost –A mutual fund let's you participate in a diversified portfolio

for as little as Rs.5, 000, and sometimes less. And with a no-load fund,

you pay little or no sales charges to own them.

Convenience and Flexibility –Investing in mutual funds has its own

convenience. While you own just one security rather than many, you still

enjoy the benefits of a diversified portfolio and a wide range of services.

Fund managers decide what securities to trade collect the interest

payments and see that your dividends on portfolio securities are received

and your rights exercised. It also uses the services of a high quality

custodian and registrar

Liquidity-In open-ended schemes, you can get your money back promptly

at net asset value related prices from the mutual fund itself.

Variety – There is no shortage of variety when investing in mutual funds. You

can find a mutual fund that matches just about any investing strategy you select.

Disadvantages of Mutual Funds

Investment Complexity

When you buy or sell mutual funds, you are making multiple trades at multiple

prices. If you are trying to accomplish a particular investing goal with a mutual

fund, targeting a certain price through your transactions can get very complex.

It’s not as easy as buying a simple asset like an exchange traded fund.

transactions High Fee Structure

In conjunction with the trading complexity of mutual funds come the associated

costs. Multiple trades translate into multiple commissions and management

fees. Not to mention the advisory fees. With an active mutual fund portfolio, the

investing costs can add up rather quickly.

Lack of Liquidity

Yes, there are a lot of different mutual funds in the investment world, but that

doesn’t necessarily mean they are very liquid. With mutual funds, the final

transactions aren’t complete until the end of a trading day difficulties on days

when Tax Disadvantages

Mutual funds are not the most tax-friendly investment in the world. Capital gain

taxes are incurred as the shares within the mutual fund are traded during the life

of the investment.

RISK in mutual funds :

Risk in mutual funds is closely associated with the factors that influence the

source of income, thus impacting the ability of the investor to earn the expected

returns on the security.

The following are the types of risk to which an investor is exposed:

Return trade - off risk

Market risk

Credit risk

Inflation risk

Interest rate risk

Political/government risk

Liquidity risk

Return Trade – OFF Risk:

The most important relationship to understand is the risk-return trade-off.

Higher the risk greater the returns/loss and lower the risk lesser the returns/loss.

Market Risk:

It refers to the risk which the investor is exposed to as a result of adverse

movements in the interest rates. Sometimes prices and yields of all securities

rise and fall. Broad outside influences affecting the market in general lead to

this. This is true, may it be big corporations or smaller mid-sized companies.

This is known as Market Risk. As is a well known fact, in fixed income

securities, there is an inverse relationship between interest rates and the price.

Credit Risk:

The debt servicing ability (may it be interest payments or repayment of

principal) of a company through its cash flows determines the Credit Risk faced

by you. This credit risk is measured by independent rating agencies like CRISIL

who rate companies and their paper. An ‘AAA’ rating is considered the safest

whereas a ‘D’ rating is considered poor credit quality. Credit risk is influenced

by both business cycles and firm – specific events. Credit risk increases during

economic contractions and decreases during economic expansions. A well-

diversified portfolio might help mitigate this risk.

Inflation Risk:

It reflects the changes in the purchasing power of the cash flows resulting from

the fixed income securities. Whenever inflation sprints forward faster than the

earnings on your investment, you run the risk that you'll actually be able to buy

less, not more. Inflation risk also occurs when prices rise faster than your

returns.

Interest Rate Risk:

In a free market economy interest rates are difficult if not impossible to predict.

Changes in interest rates affect the prices of bonds as well as equities. If interest

rates rise the prices of bonds fall and vice versa. Equity might be negatively

affected as well in a rising interest rate environment. A well-diversified

portfolio might help mitigate this risk.

Political/Government Risk:

Changes in Government policy especially in regard to the tax benefits may

impact the business prospects of the companies leading to an impact on the

investments made by the fund. They can create a favorable environment for

investment or vice versa.

Liquidity Risk:

Liquidity risk arises when it becomes difficult to sell the securities that one has

purchased. Liquidity Risk can be partly mitigated by diversification, staggering

of maturities as well as internal risk controls that lean towards purchase of

liquid securities.

INVESTOR PROTECTION AND MUTUAL FUNDS REGULATION

Need for regulation

The prevalence of risk associated with investment activity necessitates

regulation of the financial market in general, and the activities of investment

management firms in particular. Regulatory measures, whatever their form and

structure, are designed to attain the twin objectives of correcting market failures

and protecting investors from potential loss. The principles of regulating are

based on the following premises:

• To correct identified market imperfections and failures in order to improve

the market and enhance competition ;

• To increase the benefit to investors from economies of scale and

• To improve the confidence of investors in the market by introducing

minimum standard of quality.