A Interim Thesis Report Of Santosh

An Interim thesis report on

A COMPARATIVE STUDY ON THE MUTUAL FUNDS AND STOCK MARKET/SHARE MARKET (EQUITY MARKET), WHICH EVER IS BETTER INVESTMENT OPTION FROM INVESTOR’S POINT OF VIEW.

By Surendra Kumar Gautam (8NBKR033)

Table of contain 1.

Introduction

2.

Literature Review

3.

Progress Report

4.

5.

Questionnaire References

Introduction:

The project work entitled “A COMPARATIVE STUDY ON

THE MUTUAL FUNDS AND STOCK MARKET/SHARE MARKET (EQUITY MARKET), WHICH EVER IS BETTER INVESTMENT OPTION FROM INVESTOR’S POINT OF VIEW.” is mainly conducted to identify the factors which will motivate the investors to invest their money, and the organization focus on their investor. Its effects on the performances of investor in the INDIAN INVESTMENT Psychology. The aim of this business research project is to identify which is a better option for investors at large when it comes to mutual funds and equities. The market does not remain static overtime and hence the research was conducted taking into account both the Indian capital market. To conduct this research three segments were identified at random and mutual funds which invest only in those segments were chosen among the many available to investors. Similarly stocks listed on sectoral BSE index were taken and analyzed. To substantiate the research those mutual funds were also taken which specifically invests only on indexes like SENSEX, NIFTY, BSE etc. These mutual funds are supposed to be less risky as their risk is well diversified and hence their return was compared with the stocks listed on SENEX.

The data needed for the study has been collected from the investor through questionnaires. And the data’s are presented through tables and charts.

Objective of the study: There is the many objective of the study, these objective are followed. Study is those investors invest his/her money in the mutual fund or stock (capital) market. Comparison between mutual funds and share market. Better investment option. Investor’s mind set.

Relevance of study: This study will help the investor as well as an organization. An investor invests his/her money in the mutual fund or stock market investor and knows very well that he/she is taking huge risk. Investors have many questions in their mind. How much money to invest and which option are better? How much risk to be taken? Whether he will lose money or not? Will there be any profits to him? Organizations every time focus their investors and provide many profitable schemes to them. But sometimes organizations fail to attract investors to invest their money in that investment scheme. This study provides a better support to the investor and to the company who provides investment schemes and options. This study will also help investors to earn better profits from the investment options in this current market situation .Also this study will provide me the better understanding of the Indian investment scenario and will provide an opportunity to prove myself in this competitive world.

Literature Review:

The existing “Behavioral Finance” studies are very few and very little information is available about investor perceptions, preferences, attitudes and behavior. All efforts in this direction are fragmented. Lppolito (1992) says that Investment selection by investors is based on past performance of the funds and money flows into winning funds more rapidly than they flow out of losing funds. Goetzman (1997) states that there is evidence that investor psychology affect investment selection and switching.

In India, one of the earliest attempts was made by NCAER when a survey of households was undertaken to understand the attitude toward s and motivation for saving of individuals. Another NCAER study analyzed the structure of the capital market and presented the views and attitudes of individual shareholders. SEBI – NCAER Survey (2000) was carried out to estimate the number of households and the population of individual investors, their economic and demographic profile, portfolio size, and investment preference for equity as well as other savings instruments. This is a unique and comprehensive study of Indian Investors, for; data was collected from 3,00,0000 geographically dispersed rural and urban households. Some of the relevant findings of the study are: Households preference for instruments match their risk perception; Bank Deposit has an appeal across all income class; 43% of the non-investor households equivalent to around 60 million households (estimated) apparently lack awareness about stock markets; and, compared with low income groups, the higher income groups have higher share of investments in Mutual Funds, signifying that MFs have still not become truly the investment vehicle for small investors. Nevertheless, the study predicts that in the next two years (i.e., 2000 hence) the investment of households in MFs is likely to increase. We have to wait and watch the investors’ reaction to the July 2 nd 2001, great fall. UTI. (Behavior is a reaction to a situation. So as situation changes, behaviour gets modified. Hence, findings and predictions of behaviour studies should be viewed accordingly). Shanmugham (2000) conducted a survey of 201 individual investors to study the information sourcing by investors, their perceptions of various investment strategy dimensions and the factors motivating share investment decisions, and reports that among the various factors, psychological and sociological factors dominated the economic factors in share investment decisions. Madhusudhan V Jambodekar (1996) conducted a study to assess the awareness of MFs among investors, to identify the information sources influencing the buying decision and the factors influencing the choice of a particular fund. The study reveals among other things that Income Schemes and Open Ended Schemes are more preferred than Growth Schemes and Close Ended Schemes during the then prevalent market conditions. Investors look for safety of Principal, Liquidity and Capital appreciation in the order of importance; Newspapers and Magazines are the first source of information through which investors get to know about MFs/Schemes and investor service is a major differentiating factor in the

selection of Mutual Fund Schemes. Sujit Sikidar and Amrit Pal Singh (1996) carried out a survey with an objective to understand the behavioral aspects of the investors of the North Eastern region towards equity and mutual funds investment portfolio. The survey revealed that the salaried and self employed formed the major investors in mutual fund primarily due to tax concessions. UTI and SBI schemes were popular in that part of the country then and other funds had not proved to be a big hit during the time when survey was done. Syama Sunder (1998) conducted a survey to get an insight into the mutual fund operations of private institutions with special reference to Kothari Pioneer. The survey revealed that awareness about Mutual Fund concept was poor during that time in small cities like Visakapatnam. Agents play a vital role in spreading the Mutual Fund culture; open-end schemes were much preferred then; a gained income are the two important determinants in the selection of the fund/scheme; brand image and return are the prime considerations while investing in any Mutual Fund. Anjan Chakarabarti and Harsh Rungta (2000) stressed the importance of brand effect in determining the competitive position of the AMCs. Their study reveals that brand image factor, though cannot be easily captured by computable performance measures, influences the investor’s perception and hence his fund/scheme selection. Shankar (1996) points out that the Indian investors do view Mutual Funds as commodity products and AMCs, to capture the market should follow the consumer product distribution model. Since 1986, a number of articles and brief essays have been published in financial dailies, periodicals, professional and research journals, explaining the basic concept of Mutual Funds and highlight their importance in the Indian capital market environment. They touch upon varied aspects like Regulation of Mutual Funds, Investor expectations, Investor protection, Trend in growth of Mutual Funds and some are critical views on the performance and functioning of Mutual Vidyashankar Sarkar Agarwal Funds. A few among them are (1990), (1991), (1992), Sandeep Bamzai (2001), Atmaramani (1996), Subramanyam (1999),

Krishnan (1999), Ajay Srinivsasn (1999). Segmentation of investors on the basis of their characteristics was highlighted by. Raja Rajan (1997). investment size

Investor’s characteristics on the basis of their

Raja Rajan (1997), and the relationship between stage in life cycle of the investors and their investment pattern was studied Raja Rajan (1998). From the above review it can be inferred that Mutual Fund as an investment vehicle is capturing the attention of various segments of the society, like academicians, industrialists, financial intermediaries, investors and regulators for varied reasons and deserves an in depth study. In this paper, an attempt is made by the author, mainly to study the factors which influence the investors in their selection of the fund/scheme.

Guidance of present research: The stocks vs. mutual funds issue has always been a biggie for individual investors. But the question of whether you should go it alone or turn over your money to a mutual fund who'll invest it for you is even more critical today, if only because this uncertain economy and volatile market make the rewards for success and the cost of failure that much higher. Clearly, the answer will vary from person to person, depending on such factors as how much money you have to invest, how well versed you are in the ways of the financial markets and how much time and effort you want to put into your finances. It's also clear that each approach has advantages and drawbacks. With mutual funds, you get convenience, a diversified portfolio and the security of knowing that you have an experienced stock picker working full time on your behalf. On the other hand, you have less control over your investments - not just which ones you choose, but when you recognize gains. That can be an issue when it comes to taxes. If the fund sells enough shares at a profit so that the fund has realized capital gains in a given year, you'll have to pay tax on a share of those gains even if you haven't sold shares of the fund (assuming you hold the fund in a taxable account). If you decide to buy stocks on your

own, you definitely have more control over what you own and when you sell. But you've also got to be willing to devote more time and attention to your investments. So the decision to go with stocks or funds comes down to a realistic assessment of how much investor wants to make your own investing decisions and ability to handle that responsibility. Here are three questions Investor might ask yourself to help you with that assessment. Am I able to analyze companies' prospects? You don't have to be a rocket scientist to identify promising stocks. But you should be able to evaluate a company's finances. What sort of earnings growth is it likely to achieve? What's the value of its assets? Is it vulnerable because of a heavy debt load or a weakness in its product lineup? But even that's not enough. You've also got to be able to assess whether it's selling at an attractive price. If a company has solid earnings and an impeccable balance sheet but is so popular that it's trading at a bloated share price, buying it may be an invitation to subpar returns. There are many ways you can develop stock-picking skills. CNNMoney's Money 101section has easy-to-read lessons on everything from assessing stocks to putting together a portfolio. The American Association of Individual Investors also offers lots of information about stock investing that’s geared toward beginners. But until Investor at least familiarizes yourself with the basics of stock investing, stick with funds (or at least keep all but a tiny portion of your money in funds). Am I ready to devote the time and effort to monitor my holdings? As we know from recent experience, the investing world can change dramatically. I certainly don't want to suggest you need to be buying or selling stocks every time the market or the economy reverses course or

the fortunes change for a company whose stock you own. But there may be times when you should react. If a company's potential has dimmed, you may want to sell some or all of your shares and plow the proceeds into a firm that has a rosier future. Conversely, if one of your stocks has racked up such huge gains that it now represents an outsize percentage of your portfolio, you may consider selling some shares to avoid having too much riding on one stock. There may also be times when you can turn the tax system to your advantage, say, by selling shares that are trading for less than you paid for them and then using the loss to trim your tax bill. Keeping an eye on your portfolio and making occasional adjustments with job. But you should be prepared to spend at least a few hours a week tending to your holdings. If you're not disposed to put in that amount of time - and possibly more during periods of upheaval - then you're better off in funds, which generally require less attention. Do I have enough money to make it worthwhile to choose stocks on my own? Here, mutual funds offer a clear advantage for most investors. By using a tool such as Morningstar's Fund Screener, you can easily find funds that allow you in for a minimum initial investment even less in some cases. Many of the funds on our Money list of recommended funds also require a minimum investment or less. And once you're in, you can typically add to your account in increment. If you want a reasonably diversified portfolio of stocks, on the other hand, you're talking about a much larger investment. You don't have to buy in round lots of 100 shares as was the case back in the day. But at the same time you don't want brokerage commissions to eat up your returns. So even if you figure on paying a modest 10-per-transaction brokerage fee, you'd probably want to invest a minimum of 1,000 per stock in order to prevent your costs from exceeding 1% of the amount you invest. Assuming you'll need at least 20 stocks to create a balanced portfolio, you're talking about investing in the

neighborhood of 20,000 to 25,000, if not more. You can always invest smaller amounts, either initially or when adding shares. But the less you invest, the higher the percentage of your return that gets eaten up by brokerage fees. One final tip: If you're relying on personal finance columnists or cable TV pundits for stock picks, then my feeling is that you probably shouldn't be in stocks at all. The point to buying individual shares is that you think you bring something to the table that adds value and can boost your return, expertise at valuing securities, and a sense of discipline that prevents you from buying or selling on emotion. But if all you're going to do is buy on someone else's say so - in other words, substitute their judgment for yours - you'll save yourself a lot of time, energy and money by acknowledging that upfront and sticking to funds.

Progress Report: My study sample consists of Investor’s investment selection pattern. From the investor’s mind perception. On database for the 300 investor whose invest the money in the various investment options. This study allowed the identification of investor for each fund. A. Sample Selection The database was screened for investment funds with the following characteristics: 1. Selection of investment option (stock market/mutual fund). 2. Investment factor (Liquidity, Low Risk, High Return, and Trust). 3. Awareness about mutual fund and stock market. 4. Service qualities which is provide by the investment companies (Fund related Qualities, Fund provider Qualities, and Investor related Services). B. evaluation of the research objectives Evaluation was depend on the following characteristics 1. To understand the savings avenue preference, scheme preference and objectives for

investment. 2. Respondent ranks the preferences on ranking scale.

3. Variables were identified through the brainstorming section and evidence from past research. 4. 14 variables identified in the evaluation process that are followed. a) fund Performance record b) Reputation or brand name c) Portfolio of investment d) Withdrawal facilities e) Tax benefit f) Entry & Exit load g) Minimum Initial Investment h) Reputation of firm i) Reorganization of brand name

j) Expecting in managing money k) Past performance in term of risk & return l) Investment objective in advertisement m) disclosure of NAV on every day n) Disclosure of deviation of investment from the original pattern

Deviations/gaps: - there are some deviation and gaps which is found in the present study that’s followed. 1. Sample size is very less. This is present only the Kanpur’s

populations. Investors in Urban and Semi-Urban city. 2. To identify the information sources influencing the investment decision. 3. To identify the preferred communication mode. 4. The study is not conducted over a rising period of time. And this

time market goes ups and downs. Because of inflation and recession. 5. Present study is not taking any investment products of any company. This is only based on investor preference.

QUESTIONNAIRE

On “A COMPARATIVE STUDY ON THE MUTUAL FUNDS AND STOCK MARKET/SHARE MARKET (EQUITY MARKET), WHICH EVER IS BETTER INVESTMENT OPTION FROM INVESTOR’S POINT OF VIEW”

Section 1st (Identification section) Q1

Name:Age:-

Add:-

Q2

Qualification:Graduation/PG

Q3 Govt. Ser

Under Graduate

Occupation. Pl tick (√) Pvt. Ser Business

Agriculture

Others

Others

Q4 What is your monthly income approximately? Pl tick (√). Up to Rs. 10,001 to Rs. 15,001 to Rs. 20,001 to Rs. 30,001 Rs.10,000 15000 20,000 30,000 and above

Section 2nd (Related to study section) Q5

What kind of investments you have made so far? Pl tick (√). All applicable. Shares/Debenture Mutual Fund s

Q6

While investing your money, which factor will you prefer?

(a) Liquidity

(b) Low Risk

(c) High

(d) Trust

Return

Q7 Yes

Q8 Yes

Q9

Are you aware about Mutual Funds and their operations? Pl tick (√). No Are you aware about share market and their operation? Pl tick (√). No What is your current attitude towards the following financial

Instruments, in the Indian capital market? Pl tick (√). Highly favorabl e shares Mutual funds

Favorable

Some what favorable

Not very favorable

Not at all favorable

Q10

You prefer investment in mutual fund due to (Rank from 1to 8

down). Safety

Liquidity

Flexibility

good return

Tax Benefit

diversification benefit

Q11There are many quality that could affect your selection of investment scheme, Please indicate importance of following in your decision.

Highl y Impor tant

Importan t

Some what Important

Not very Important

Not at all important

I. Fund related Qualities fund Performance record Reputation or brand name Portfolio of investment Withdrawal facilities Tax benefit Entry & Exit load Minimum Initial Investment 2. Fund provider Qualities Reputation of firm Reorganization of brand name experting in managing money Past performance in term of risk & return 3. Investor related Services Investment objective in advertisement disclosure of NAV on every day Disclosure of deviation of investment from the original pattern

References: 1. Agarwal, G.D., 1992, “Mutual Funds and Investors Interest”, Chartered Secretary Vol.22,

No.1, 23-24. 2. Ajay Srinivasan, 1999, “Mutual Funds: The New Era”, Chartered Secretary A 262. 3. Anjan Chakrabarti and Harsh Rungta, 2000, “Mutual Funds Industry in India: An indepth

look into the problems of credibility, Risk and Brand”, The ICFAI Journal of Applied Finance, Vol.6, No.2, April, 27-45. 4. Atmaramani, 1996, “Restoring Investor Confidence”, The Hindu Survey of Indian Industry,

435-437. 5. Syama Sundar, P.V., 1998, “Growth Prospects of Mutual Funds and Investor perception

with special reference to Kothari Pioneer Mutual Fund”, Project Report, Sri Srinivas Vidya Parishad, Andhra University, Visakhapatnam 6. Ippolito, R., 1992, “Consumer reaction to measures of poor quality : Evidence from Mutual

Funds”, Journal of Law and Economics, 35, 45-70 7. Madhusudan V. Jambodekar, 1996, Marketing Strategies of Mutual Funds

– Current

Practices and Future Directions,Working Paper, UTI – IIMB Centre for Capital Markets Education and Research, Bangalore. 8. Sujit Sikidar and Amrit Pal Singh, 1996, Financial Services : Investment in Equity and

Mutual Funds – A Behavioral Study, in Bhatia B.S., and Batra G.S., ed., Management of Financial Services,Deep and Deep Publications, New Delhi, Chapter 10, 136-145. 9. Sandeep Bamzai, 2000, “Meltdown blues impact industry”, Business India April,21 –

Sept.3, 120-132. 10. Krishnan, M.A., 1999, “Moving into growth mode”, The Hindu Survey of Indian Industry. 11. Raja Rajan V., 1997, “Chennai Investor is conservative”, Business Line , Feb. 23. 12. Raja Rajan, 1997, “Investment size based segmentation of individual investors”,

Management Researcher, 3 (3 & 4), 21-28. 13. Raja Rajan, 1998, “Stages in life cycle and investment pattern”, The Indian Journal of

Commerce, 51 (2 & 3), 27 – 36. 112-114.