Risk management in mutual fund

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A PROJECT REPORT
ON
“STUDY OF RISK MANAGEMENT IN MUTUAL FUNDS”
IN THE PARTIAL FULFILLMENT OF THE REQUIREMENT
OF
MASTER OF MANAGEMENT STUDIES
BATCH 2016-2018
Submitted by
Deepak Rajmani Pandey
ROLL NO: 36
BATCH: 2016-2018
Under the guidance of
“Dr. Anjali Bhute”
Pillai Institute of Management Studies and Research, Dr. K.M. Vasudevan Pillai Campus,
Sector - 16, New Panvel-410206

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DECLARATION
This is to certify that Summer Training Report entitled “Study of risk management in
mutual funds”. Which is submitted by me in partial fulfillment of the requirement for the
Masters in Management Studies (MMS), at Pillai Institute of Management Studies and
Research, New Panvel comprises only my original work and due acknowledgement has
been made in the text to all other material used.
Date: Signature:
Place: Panvel Name: Deepak Pandey

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CERTIFICATE OF APPROVAL
This is to certify that the project titled “Study of risk management in Mutual Fund” as a
part of the curriculum of Master of Management Studies, submitted by Mr. Deepak Pandey
a student of Pillai Institute of Management Studies and Research has been approved.
Dr. Anjali Bhute Dr. Satish K. Nair
Faculty Guide Director

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ACKNOWLEDGEMENT
The opportunity to get practical training in a reputed organization fulfills the felt gap
between the theory and practical. In the case of a student of finance & control, this aspect
assumes an additional dimension.
I hereby acknowledge Motilal Oswal Securities Limited for providing the constant
guidance and encouragement which helped me a lot to be successful in my efforts. This
formal acknowledgement will hardly be sufficient to express my deep sense of gratitude to
all of them. It was a memorable experience while doing my summer training project on a
Study of Risk management in mutual fund.
I would also like to thanks Dr. Satish K. Nair director of Pillai Institute of
Management Studies and Research, New Panvel and Dr. Anjali Bhute my faculty guide
without whom this project report could not be successfully completed.

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EXECUTIVE SUMMARY
This paper is the result of Descriptive study of Mutual Funds in India. A Mutual Fund
is a trust that pools the savings of a number of investors who share a common financial goal.
It throws the light on how Mutual funds really work, how much risk involved in it and how
they diversify themselves. Investing involves risk of loss of principal and is more concerned
on the return of investment. This total risk, measured by standard deviation, can be divided
into two parts: Unsystematic risk, systematic risk. Unsystematic risk is also called
diversifiable risk. Systematic risk may be called non-diversifiable risk, unavoidable risk or
market risk and can be measured by Beta.
The main objective of the study is to give investors a basic idea of investing into the
Mutual Funds and encourage them to invest in those areas where they can maximize the
return on their capital. The research provided an interesting insight into awareness about the
mutual funds, differences in age groups, occupation, income levels, risk taking ability of
individuals, investment options preferred etc.
The Indian capital market has been increasing tremendously during last few years.
With the reforms of economy, reforms of industrial policy, reforms of public sector and
reforms of financial sector, the economy has been opened up and many developments have
been taking place in the Indian money market and capital market. In order to help the small
investors, mutual fund industry has come to occupy an important place. This study helps me
to understand how the companies diversify themselves in different sectors and in different
companies to maximize the return and to minimize the risk involved in it. It also taught me
how to take every experience in the right sprit & learn from each one.
Finally, I shall consider all my hard work worthwhile, if this endeavor of mine is able
to satisfy all those concerned & proves useful to any one or for any study in the future.

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INDEX
SR. NO. TOPIC PAGE NO.
1 CHAPTER 1
1.1 INTRODUCTION TO MUTUAL FUND 8
1.2 OVERVIEW OF RISK INVOLVEMENT IN MUTUAL FUND 8
1.3 PROCESS OF RISK MANAGEMENT 10
1.4 OBJECTIVE OF THE STUDY 12
1.5 RESEARCH METHODOLOGY 13
1.6 LITERATURE REVIEW 15
1.7 SCOPE & NEED OF THE STUDY 16
1.8 LIMITATIONS OF THE STUDY 18
2 CHAPTER 2
2.1 COMPANY PROFILE 20
2.2 INDUSTRIAL PROFILE 23
3 CHAPTER 3
THEORETICAL BACKGROUND 26
4 CHAPTER 4
DATA INTERPRETATION 29
5 CONCLUSIONS AND FINDINGS 32
6 SUGGESTIONS AND RECOMMENDATIONS 36
7 REFERENCES 39
8 ANNEXURE 40

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CHAPTER 1
INTRODUCTION

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CHAPTER - 1
1.1 Introduction to Mutual Fund and Risk Management
What is Mutual Fund?
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is invested by the fund manager in
different types of securities depending upon the objective of the scheme. These could range
from shares to debentures to money market instruments. The income earned in these
investments and the capital appreciation realized by the scheme is shared by its unit holders
in proportion to the number of units owned by them. Thus, a Mutual Fund is the most suitable
investment for the common man as it offers an opportunity to invest in a diversified,
professionally managed portfolio at a relatively low cost. Anybody with an investible surplus
of a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a
defined investment objective and strategy.
1.2 Overview of Risk Involvement in Mutual Fund
In the investment world, however, risk is inseparable from performance and, rather
than being desirable or undesirable, is simply necessary. Understanding risk is one of the
most important parts of a financial education. A common definition for investment risk is
"deviation from an expected outcome." We can express this deviation in absolute terms or
relative to something else like a market benchmark. Deviation can be positive or negative,
and it relates to the idea of "no pain, no gain" - to achieve higher returns in the long run, you
have to accept more short-term volatility. How much volatility depends on your risk
tolerance - an expression of the capacity to assume volatility based on specific financial
circumstances and the propensity to do so, taking into account your psychological comfort
with uncertainty and the possibility of incurring large short-term losses.
One of the most commonly used absolute risk metrics is standard deviation, a
statistical measure of dispersion around a central tendency. For example, during a 15-year
period from August 1, 1992 to July 31, 2007, the average annualized total return of the S&P
500 Stock Index was 10.7%. This number tells you what happened for the whole period, but
it doesn't say what happened along the way.

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Another risk measure oriented to behavioral tendencies is drawdown, which refers to
any period during which an asset's return is negative relative to a previous high mark. In
measuring drawdown, we attempt to address three things: the magnitude of each negative
period (how bad), the duration of each (how long) and the frequency (how many times).
In short, risk is inseparable from return. Every investment involves some degree of risk,
which can be very close to zero in the case of a U.S. Treasury security or very high for
something such as concentrated exposure to Sri Lankan equities or real estate in Argentina.
Risk is quantifiable both in absolute and in relative terms. A solid understanding of risk in its
different forms can help investors to better understand the opportunities, trade-offs and costs
involved with different investment approaches.
An Investor might be familiar with the risk-reward concept, which states that the
higher the risk of a particular investment, the higher the possible return. But many investors
do not understand how to determine the risk level their individual portfolios should bear. This
project provides a general framework that any investor can use to assess his or her personal
risk level and how this level relates to different investments.
Managing a portfolio is essentially a process of balancing expected risks and expected
returns, bearing in mind any restrictions and constraints that there might be. For example,
these constraints may be placed on the portfolio manager by the client, a regulator, or may be
effectively self- imposed by the fund manager for professionally prudent reasons.
Arbitrary stock restrictions were historically a way of managing risk. Popular ways of
managing risk in the past have utilised ad hoc portfolio construction rules. A restriction of a
maximum of 10% in any single stock within a portfolio is a good example of this. Other
examples include minimum and maximum sector and country weights, often relative to a
client-specified benchmark; restrictions on large vs. small capitalisation exposures, and so on.
Indeed, it could be argued that the widely practised idea of sector neutrality within a
portfolio is just another arbitrary restriction. However, as we will show later, ensuring the
money neutrality of holdings within a portfolio is a wholly different thing to true risk
neutrality. For example, a fund might have the same exposure to the telecommunications
sector as in the fund's benchmark, but if you own the more volatile stocks in the sector and do
not own the less volatile telecommunications stocks, the likelihood is that you will have a risk
overweight' position in the telecommunications sector as a whole.

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Furthermore, there has been no widespread recognition of the idea that portfolio
construction should be a distinct discipline within a fund management house; the problems
and challenges of portfolio construction and risk management are every bit as much a
`science' as they are an `art'.
Frequently, the same professionals who are involved in asset allocation or stock
selection are often involved in portfolio construction, without accepting that the skill sets
required may be very different. It is our view that fund managers will increasingly make this
distinction in the future. More recently, the legal and regulatory systems, combined with a
more sophisticated end client base, have started the process of making risk an explicit
constraint on the portfolio manager. Consultants and regulators are also becoming more and
more interested.
Modern portfolio and risk analysis systems give the fund manager the tools to manage
risk and return interactively, allowing them to both comply with regulations and client
restrictions and to best manage return under these constraints. In our view, it is essential for
fund managers to have such systems in the face of increasing competition and client
accountability. This is distinctly different from simply monitoring risk, say once a month in
arrears, to comply with the minimum standards of due diligence expected by the client.
1.3 PROCESS OF RISK MANAGEMENT
The primary functions of the Risk Management team are threefold:
1. Providing portfolio construction and risk analysis and insight to fund managers as
required
2. Delivering analysis for the Investment Oversight process on the drivers of risk and
performance within portfolios so senior management can engage with fund managers
productively.
3. Communicating portfolio construction insight and transparency to our clients.
The Risk Management team is responsible for leading the analysis of risk and
performance in equity portfolios. The process is supported by a team of analysts.

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Working closely with the fund managers, the risk management team’s main objective is
to provide in-depth analysis of the investment approach and portfolio construction of equity
funds, and to monitor the various dimensions of investment risk assumed. This includes:
active risk (forecast tracking error); beta; volatility; investment style; liquidity; and market-
cap bias, as well as exposure to individual countries, sectors and stocks. The team is fully
integrated with fund management, providing ongoing support and challenge to the investment
decision making process. However, managers remain ultimately responsible for all
investment decisions on their funds.
Regular monitoring of the risks assumed by the funds (provided on a monthly basis,
although a wide variety of ad hoc analysis is also undertaken in support of the fund
management process) and their interpretation by the team provides the fund managers with
the following key analysis:
● Allocation of the risk budget – quantification of a fund’s absolute and relative risk and
how this is allocated among the various sources of risk
● Identification of unintended risks arising from a bottom-up approach – this includes
systematic biases, exposure to sectors and macroeconomic factors (i.e., currencies and
interest rates)
● Ensuring managers are maximising returns from high conviction positions by backing
those positions with enough risk
● Assessment of the fund’s investment style on a variety of measures, and its alignment
with the stated investment approach of the manager
● Pre-trade analysis – to scrutinise the effect of potential new positions on the overall
risk budget of the fund before they are initiated
● Developing new screens to support stock idea generation and benefit portfolio
construction.
The team uses a variety of risk models and techniques to capture intended investment
risks and, more importantly, the unintended risks that can arise as a result of a fund’s stock-
specific investment approach.

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1.4 OBJECTIVE OF THE STUDY
Primary Objective:
● Define risk management strategies and clear accountabilities and action steps for
building and executing risk management capabilities and improving them
continuously by Fund Manager using Risk Management process which as follows:
1. Risk Management Planning
2. Risk Identification
3. Qualitative Risk Analysis
4. Quantitative Risk Analysis
5. Risk Response Planning
6. Risk Monitoring/Control.
Secondary Objective:
● To study about various aspects or tool undertaken by fund manager while evaluating
risk to form Diversified Portfolio Risk Management.
● To know about how retail investor/customer plans to manage risk while investing in
stock market. Strategies, tools and techniques applied by retail investor.
● Develop a common understanding of risk across multiple functions and business units
so we can manage risk cost-effectively on an enterprise-wide basis. Achieve a better
understanding of risk for competitive advantage.

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1.5 LITERATURE REVIEW
Jack Treynor (1965) developed a methodology for performance evaluation of a mutual fund
that is referred to as reward to volatility measure, which is defined as average excess return
on the portfolio. This is followed by Sharpe (1966) reward to variability measure, which is
average excess return on the portfolio divided by the standard deviation of the portfolio.
Michael C. Jensen (1967) conducted an empirical study of mutual funds in the period of
1954-64 for 115 mutual funds. The results indicate that these funds are not able to predict
security prices well enough to 30 outperform a buy the market and hold policy. The study
ignored the gross management expenses to be free. There was very little evidence that any
individual fund was able to do significantly better than which investors expected from mere
random chance.
Bansal’s book (1996) “mutual fund management & working” included a descriptive study of
concept of mutual funds, Management of mutual funds, accounting & disclosure standards,
Mutual fund schemes etc.
Sadhak’s book (1997) “Mutual funds in India, Marketing strategies and investment
practices” is highly analytical & thought provoking. Much research has gone into writing of
this book and hence highly useful to researchers. An attempt is made of the first time in
presenting Marketing strategies of Mutual funds.
National Council of Applied Economic Research (NCAER) “Urban Saving survey”
noticed that irrespective of occupation followed and educational level and age attained,
households in each group thought saving for the future was desirable. It was found that desire
to make provision for emergencies were a very important motive for saving for old age. It is
found out from the survey ‘Survey of Indian Investors’ conducted by NCEAR (2000) and the
regulatory authority SEBI, reported that Safety and liquidity were the primary considerations
which had determined the choice of an investment asset. In this paper NCAER found out the

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Factors which influence individual the investment decision, is the difference in the perception
of Investors in the investing process on the basis of Age and the difference in perception of
the Investors on the basis of Gender.
Bijan Roy & Saikat Sovan Deb (2003) in the article “conditional alpha & performance
persistence for Indian Mutual funds Empirical evidence” investigated the Indian MF mangers
contribution to better performance. The research found that on an average the Indian MF
managers only captures the opportunities from the available economic information, they do
not contribute beyond it. The paper stresses that, the above basing on when the beta the fund
is conditioned to lag economic information variables, the fund on an average becomes
negative. The information variables used in the study are interest rates, dividend yields, term
structure yield spread and a dummy. The authors also examined the evidence of persistence
in the performance of IMF based on cross sectional regressions of future excess returns on a
measure of past fund performance and used both conditional & unconditional measures of
performance as measure of part fund performance. The results indicated that conditional
measures of past performance predict the future fund returns significantly.
Sowmya Guha, Deb & Ashok Banerjee (2009) in the article entitled “Downside risk
analysis of Indian equity MFs A value at risk approach” put forward downside risk lends of
Indian equity MF using a VaR measure. 41 Three parametric models random walk, moving
average, exponentially weighted moving average and one non-parametric model were
employed to predict the VaR of a sample of equity MFs in India in a rolling basis and actual
changes in NAV registered by the funds were compared with the estimated VaR post facto.
The results indicated presence of considerable downside risk for an investor in equity MFs
for the study period under consideration. The study also tested the robustness of the models
using two popular back testing approaches. The statistical tests of the models based on the
framework indicated that random walk model & moving average model suffered from a
down ward bias and err by underestimating the VaR frequently.

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1.6 RESEARCH METHODOLOGY
This project is based on information collected from primary sources as well as
secondary resources. After the detailed study, an attempt has been made to present
comprehensive analysis on Risk management by Customer/Retail Investor in Stock Market.
The data had been used to cover various aspects like customer’s preference while selecting
stock of company, their method of study for risk evaluation. The Indian Government has
sponsored various reviews which are likely to have far reaching consequences.
Survey design:
For the purpose of present study, a related sample of population was selected on the
basis of convenience. The sample of population picked on the basis of having knowledge of
Mutual Funds, Share Market, Business Class people, Service class people, etc.
Sample Size and Design:
A sample of 100 people was taken on the basis of convenience. The actual customer
was contacted on the basis of random sampling. The sample designed in such a way that it
answers the most effective way of how retail investor tries to minimize the risk as per their
prospective and also say how much a general public invest in Stock Market.
Data Collection:
● Primary Source:
The primary data comprises information survey of “Analysis on Risk Management by
Customer/Retails Investor in Stock Market”. The data has been collected directly from
respondent with the help of structured questionnaires. Questionnaire consisting various
aspects of getting the survey completed by acquiring responses from respondents having
some knowledge of Stock Market and Risk Management.
● Secondary Source:
The secondary data was collected from Internet, Scholarly papers and References from
Library.
Data Analysis:
The data is analysed on the basis of suitable tables by using mathematical techniques.
The technique that I have used is bar graph and pie chart techniques.

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1.7 SCOPE OF THE STUDY
The Scope of this project highlights the role of risk budgeting how risk is spent in the
investment management process and some of the practical issues encountered. Risk
budgeting has received a great deal of interest from the investment management community
recently, but no clear consensus has emerged on how it should be implemented. There are
practical implications for chief investment officers and chief executive officers on how they
allocate human resources and capital in the investment management process.
A statistical factor model for stock returns is used to build a risk model of the market
that separates the factor components (representing the market, investment themes and styles)
and the stock specific component. Then cluster analysis techniques provide a visualisation of
the changing risk structure of the market. Natural groupings of stocks emerge within the
market often different to the classical industrial classification systems widely used today.
These natural groupings clearly change over time reflecting the changing nature of equity
markets, e.g. these techniques show very clearly the emergence of the telecommunications,
media, technology phenomenon in the late 1990s and its subsequent demise in early 2001.
Using the framework of a statistical factor model, risk budgets can be aggregated or
dis-aggregated. Aggregation can be to country, sector or any other group. Dis-aggregation
will be to common factors (e.g. the market, growth, value and other styles) and stock specific
factors, derived from a multi-factor model.
In recent years financial markets have been subject to a great deal of change. Some
examples of these changes include the following:
1. We have witnessed a high, and perhaps unprecedented, level of uncertainty in
investment markets.
2. There have been changes to society's attitude towards the provision of saving,
provision for retirement and ill-health, and so on. Owners of assets require ever
greater levels of accountability from their advisers. The Indian Government has
sponsored various reviews which are likely to have far reaching consequences.
3. Changes in legislation and professional standards have clearly had very material
effects on the way in which financial markets work.

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4. We have witnessed several `bubbles' the rise (and subsequent fall) of the technology,
media and telecommunications sector and many corporate excesses, some of which
have not been matched in recent memory, or perhaps ever.
5. There has probably never been a broader variety and choice of savings, investment
and speculation opportunities available to the sophisticated and unsophisticated
investor alike.
Market participants have reacted to these changing times in different ways, as they
struggle to adapt to the new circumstances in which they find themselves. The challenges are
made worse, as markets have had to make their adjustments against a back-drop of difficult
and volatile markets conditions.
NEED OF THE STUDY
Against this complex background, this project primarily focuses on the efficient
management of equity portfolios, and aims to provide a practical rationale to help portfolio
managers answer a number of questions:
1. How are the risks in any particular equity market changes over time?
2. How can one `budget one's risk' more effectively in a practical sense?
Risk management of investment portfolios has never had as much attention as it has
currently, yet the discipline is evolving and changing. In this context, we will cover the topic
of risk measurement, risk management and the changing paradigm of the effects of fully
integrating risk management into a fund management investment process.
The building of a risk model is a relatively technical operation, but it is essential for
practical application for portfolio managers, even though it is of little interest to them in its
own right. We overlay the application of cluster analysis onto the risk model in an innovative
way to show the risk structure of the market. Repeating this process at various points in time
shows how the risk structure of a market changes over time.

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To an investment manager `risk' is an important and precious commodity, and needs
to be spent prudently. Whilst a number of papers have been written on this important topic,
there seems to be a dearth in the current literature on practical applications to help fund
managers in this task.
The study is also important to analyse that the investor is aware of tools and technique
used in the risk management technique and what tools and technique are used by professional
manager to manage and construct the portfolio which minimize the risk by diversifying the
investment in different sector wise allocation. This report will also be going to upload on
various website so that people around the world can take benefit to have a clear idea about
what should be taken into consideration before investing into share market.
1.8 LIMITATIONS OF THE STUDY
In attempt to make this project authentic and reliable, every possible aspect of the topic
was kept in mind. Nevertheless, despite of fact constraints was at play during the formulation
of this project. The main limitations are as follows:
● Due to limitation of time only few people were selected for the study. So, the sample
of customer was not enough to generalize the findings of the study.
● The main source of data for the study was primary data with the help of self-
administered questionnaires. Hence, the chances of unbiased information are less.
● The chance of biased response can’t be eliminated though all necessary steps were
taken to avoid the same.

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CHAPTER 2
COMPANY PROFILE

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CHAPTER - 2
COMPANY PROFILE
Motilal Oswal Securities Ltd.(MOSL) was founded in 1987 as a small sub-broking
unit, with just 2 people running the show. Focus on customer-first attitude, ethical and
transparent business practices, respect for professionalism, research based value investing and
implementation of cutting edge technology have enabled us to blossom into an over 5274-
member team.
Motilal Oswal Financial Services Ltd. is a diversified financial services firm offering
a range of financial products and services such as Wealth Management, Retail Broking and
Distribution, Institutional Broking, Asset Management, Private Equity, Investment Banking,
Commodity Broking and Home Finance. They have a diversified client base that includes
retail customers (including High Net Worth Individuals), mutual funds, foreign institutional
investors, financial institutions and corporate clients. Headquartered in Mumbai and as of
March 2017, had a network spread over 600 cities and towns comprising 2200+ Business
Locations operated by our Business Partners and us. Registered customers as on March 2017,
is 8,50,000.
Research is the solid foundation on which Motilal Oswal Securities’ advice is based. Almost
10% of revenue is invested on equity research and they hire and train the best resources to
become our advisors. At present, they have 25 research analysts researching over 251
companies across 20 sectors. From a fundamental, technical and derivatives research
perspective, Motilal Oswal`s research reports have received wide coverage in the media.
Their consistent efforts towards quality equity research have reflected in an increase in the
ratings and rankings across various categories in the AsiaMoney Brokers Poll over the years.
Motilal Oswal have also been awarded the Best Performing Equity Broker (National) at the
CNBC TV18 Financial Advisor Awards for four years in a row. Motilal Oswal Asset
Management Company has $ 2.5 billion of equity assets under management as on February
28. This is across its mutual funds, PMS and alternative investment funds.
Motilal Oswal AMC follows a 'Buy Right: Sit Tight' investment philosophy. "Buy Right"
means buying high Quality - high Growth companies with Longevity of competitive

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advantage at a reasonable Price (QGLP) and Sit Tight means staying patiently invested in a
concentrated portfolio to realize the full growth potential of the underlying stocks.
The asset management company is steered by a highly experienced team of 13 which
includes equity fund management and research professionals. The total strength of the
organization is 120 people.
Motilal Oswal AMC is a purely equity focused house. The accomplishment is distinct as both
PMS & MF contributed more than $ 1 billion each with excellent performance backed by a
niche positioning and product range of very few strategies on either product platform.
Overall, PMS contributed to approx. $1.4 billion, followed by MF equity AUM, which stood
at approximately $1.2 billion.
Motilal Oswal Financial Services Ltd., consists of five companies.
Motilal Oswal Investment Advisors Pvt. Ltd. is our Investment Banking arm with collective
experience of over 100 years in investment banking/corporate banking and advisory services
Motilal Oswal Commodities Broker (P) Ltd. has been providing commodity trading facilities
and related products and services since 2004.
Motilal Oswal Venture Capital Advisors Private Limited has launched the India Business
Excellence Fund (IBEF), a US$100 MN India focused Private Equity Fund.
Motilal Oswal Financial Services (through its subsidiary Motilal Oswal Securities Ltd.)
received the final certificate of registration approval from Securities and Exchange Board of
India (SEBI) to set up a mutual fund business in the country. Motilal Oswal Asset
Management Company is registered with SEBI as the Investment Manager for Motilal Oswal
Mutual Fund. It provides Investment Management and Advisory Services to investors based
within and outside India and having Portfolio Management Services business, ETFs and
Mutual Funds. Motilal Oswal Asset Management Company Ltd.
Aspire Home Finance Corporation Limited (AHFCL) which is a part of Motilal Oswal
Financial Services Limited (MOFSL) is a professionally managed housing finance company
with unique combination of financially sound and technically experienced promoters who are
well known in their domain for professional ethics and strong execution capabilities.

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Company Core Purpose:
To be a well-respected and preferred global financial services organization enabling wealth
creation for all our customers.
Values:
Integrity: A company honoring commitment with highest ethical and business practices.
Team Work: Attaining goals collectively and collaboratively.
Meritocracy: Performance gets differentiated, recognized and rewarded in an apolitical
environment.
Passion & Attitude: High energy and self-motivated with a “Do It” attitude and
entrepreneurial spirit.
Excellence in Execution: Time bound results within the framework of the company’s value
system.
MANAGEMENTTEAM:
Mr. Motilal Oswal Chairman and Managing Director
Mr. Raamdeo Agrawal Non-Executive Director
Mr. Navin Agarwal Non-Executive Director
Mr. Ashutosh Maheshwari CEO - MOIA
Mr. Vishal Tulsyan CEO - MOVC

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2.2 INDUSTRIAL PROFILE
THE MUTUAL FUND INDUSTRY IN INDIA:
The mutual fund industry in India started in 1963 with the formation of Unit Trust of India
(UTI) at the initiative of the Reserve Bank of India (RBI) and the Government of India. The
objective then was to attract small investors and introduce them to market investments. Since
then, the history of mutual funds in India can be broadly divided into six distinct phases.
Phase I (1964-87):Growth Of UTI:
In 1963, UTI was established by an Act of Parliament. As it was the only entity offering
mutual funds in India, it had a monopoly. Operationally, UTI was set up by the Reserve Bank
of India (RBI), but was later delinked from the RBI. The first scheme, and for long one of the
largest launched by UTI, was Unit Scheme 1964.Later in the 1970s and 80s, UTI started
innovating and offering different schemes to suit the needs of different classes of investors.
Unit Linked Insurance Plan (ULIP) was launched in 1971. The first Indian offshore fund,
India Fund was launched in August 1986. In absolute terms, the investible funds corpus of
UTI was about Rs 600 crores in 1984. By 1987-88, the assets under management (AUM) of
UTI had grown 10 times to Rs 6,700 crores.
Phase II (1987-93): Entry of Public Sector Funds:
The year 1987 marked the entry of other public sector mutual funds. With the opening up of
the economy, many public-sector banks and institutions were allowed to establish mutual
funds. The State Bank of India established the first non-UTI Mutual Fund, SBI Mutual Fund
in November 1987. This was followed by Canbank Mutual Fund, LIC Mutual Fund, Indian
Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund.
From 1987-88 to 1992-93, the AUM increased from Rs 6,700 crores to Rs 47,004 crores,
nearly seven times. During this period, investors showed a marked interest in mutual funds,
allocating a larger part of their savings to investments in the funds.
Phase III (1993-96): Emergence of Private Funds:
A new era in the mutual fund industry began in 1993 with the permission granted for the
entry of private sector funds. This gave the Indian investors a broader choice of 'fund

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families' and increasing competition to the existing public-sector funds. Quite significantly
foreign fund management companies were also allowed to operate mutual funds, most of
them coming into India through their joint ventures with Indian promoters. The private funds
have brought in with them latest product innovations, investment management techniques and
investor-servicing technologies. During the year 1993-94, five private sector fund houses
launched their schemes followed by six others in 1994-95.
Phase IV (1996-99): Growth and SEBI Regulation:
Since 1996, the mutual fund industry scaled newer heights in terms of mobilization of funds
and number of players. Deregulation and liberalization of the Indian economy had introduced
competition and provided impetus to the growth of the industry. A comprehensive set of
regulations for all mutual funds operating in India was introduced with SEBI (Mutual Fund)
Regulations, 1996. These regulations set uniform standards for all funds. Erstwhile UTI
voluntarily adopted SEBI guidelines for its new schemes. Similarly, the budget of the Union
government in 1999 took a big step in exempting all mutual fund dividends from income tax
in the hands of the investors. During this phase, both SEBI and Association of Mutual Funds
of India (AMFI) launched Investor Awareness Programme aimed at educating the investors
about investing through MFs.
Phase V (1999-2004): Emergence of a Large and Uniform Industry:
The year 1999 marked the beginning of a new phase in the history of the mutual fund
industry in India, a phase of significant growth in terms of both amount mobilized from
investors and assets under management. In February 2003, the UTI Act was repealed. UTI no
longer has a special legal status as a trust established by an act of Parliament. Instead it has
adopted the same structure as any other fund in India - a trust and an AMC. UTI Mutual Fund
is the present name of the erstwhile Unit Trust of India (UTI). While UTI functioned under a
separate law of the Indian Parliament earlier, UTI Mutual Fund is now under the SEBI's
(Mutual Funds) Regulations, 1996 like all other mutual funds in India. The emergence of a
uniform industry with the same structure, operations and regulations make it easier for
distributors and investors to deal with any fund house. Between 1999 and 2005 the size of the
industry has doubled in terms of AUM which have gone from above Rs 68,000 crores to over
Rs 1,50,000 crores.

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CHAPTER 3
THEORETICAL
BACKGROUND

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CHAPTER – 3
THEORETICAL BACKGROUND
MUTUAL FUND RISK: -
Mutual funds face risks based on the investments they hold. For example, a bond fund faces
interest rate risk and income risk. Bond values are inversely related to interest rates. If
interest rates go up, bond values will go down and vice versa. Bond income is also affected
by the changes in interest rates. Bond yields are directly related to interest rates falling as
interest rates fall and rising as interest rates.
Similarly, a sector stock fund is at risk that its price will decline due to developments in its
industry. A stock fund that invests across many industries is more sheltered from this risk
defined as industry risk.
Followings are glossary of some risks to consider when investing in mutual funds:-
 Country Risk: -
The possibility that political events (a war, national election), financial problems (rising
inflation, government default), or natural disasters will weaken a country’s economy and
cause investments in that country to decline.
 Income Risk: -
The possibility that political events (a war, national election), financial problems (rising
inflation, government default), or natural disasters will weaken a country’s economy and
cause investments in that country to decline.
 Market Risk: -
The possibility that stock fund or bond fund prices overall will decline over short or even
extended periods. Stock and bond markets tend to move in cycles, with periods when prices
rise and other periods when prices fall.

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The data analysis is mainly done through the three important measures of
mutual funds.
 Sharpe Measure
The most common measure that combines both risk and reward into a single indicator is the
Sharpe Ratio. A Sharpe Ratio is computed by dividing a fund’s return in excess of a risk-free
return (usually a 90-day Treasury bill or SBI fixed deposit rate) by its standard deviation.
Sharpe Ratio = (Ri - Rf) / Si
Where, Si is standard deviation of the fund
Ri is return on investment, Rf is risk free rate of interest.
❖ Treynor measure
The Treynor ratio is similar to the Sharpe ratio. Instead of comparing the fund’s risk adjusted
performance to the risk free return, it compares the fund’s risk adjusted performance of the
relative index.
Treynor’s Index(Ti) = (Ri - Rf) / Bi
Where, Ri represents return on fund,
Rf is risk free rate of return and Bi is beta of the fund.
❖ Jensen’s measure
This represents the difference between the Expected performance from a fund, given its Beta,
and the actual returns it generates.
Jensen’s measure = Fund return - [Risk free rate + Beta of fund
(Benchmark Return - Risk free return)]

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CHAPTER 4
DATA STUDY AND
INTERPRETATION

Page | 29
CHAPTER - 4
DATA STUDY AND INTERPRETATION
1) Age Group
INTERPRETATION
From the above diagram, it can be inferred that 87.5% of respondents are from the age group
of 20-30 age, 7.5% respondents are from 31-40 age and 5% respondents are from 41-50 age.
2) What is your Occupation?
INTERPRETATION
From the above chart the majority of respondents i.e. 45 respondents are salaried followed by
students and Self-employed professional.

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3) What is your monthly income?
INTERPRETATION
Out of the total respondents 63.2% i.e. 63 respondents having monthly income up to Rs.
20,000/-, 26 respondents falls between monthly income of Rs. 20,000 to Rs. 60,000/- and 11
respondents having monthly income above Rs. 60,000/-
4) What percentage of Income do you save?
INTERPRETATION
In the above observation it has been seen that 43 respondents save less than 10% of their
income, 30 respondents save in between 10 - 20% of their income, only 10 respondents save
about 20 – 30% of their income.

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5) Have you invested your savings so far?
INTERPRETATION
As per the data received 72 respondents have invested their saving whereas 28 respondents
have not invested their savings.
6) Which of the following avenues have you opted for?
INTERPRETATION
The above chart shows that the most sought Investment Avenue among the respondents is
bank deposits as 55 respondents have opted bank deposits as a preferred avenue for
investment followed by Mutual fund.

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7) I would describe my knowledge of investment in Equity Market as
INTERPRETATION
Out of the 100 respondents, 35 of them have moderate knowledge about Equity Market, 15 of
them have extensive knowledge about Mutual fund and 18 of them do not have knowledge
about Mutual fund .
8) What do you consider the most important parameters while investing?
INTERPRETATION
As usual from an investor perspective the most important parameter for investment is Return
on investment opted by 70 respondents, 50 respondents will go for Company profile, 40
respondents want low risk in their portfolio.

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9) What will be your Primary Goal for Investment?
INTERPRETATION
 72 respondents are investing for Long-term growth
 50 respondents want to generate cash flow as alternate to regular income
 15 respondents opted expenses for higher education as a primary goal.
10) What will be your Risk evaluating pattern while investment?
INTERPRETATION
 65 respondents opted for Study on Company’s financial as risk evaluation before
investment.
 52 respondents and 45 respondents will go for research on company’s profile and
advice from professional expert.
 35 respondents will go for advice from current investor.

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11) How much of a temporary decline in the value of you investment could you
tolerate? (Annual Basis)
INTERPRETATION
 More than 55 % respondents want less than 5% decline in their investment
 10% respondents do not want any decline in their investment
 25% respondents can bear 5 – 10% decline in investment.
12) How will you manage your Equity Investment Risk?
INTERPRETATION
 48 respondents will invest through professional advisor
 40 respondents have opted to Invest in Diversified Intrument
 10 respondents will dis-invest their investment

Page | 35
13) If you wish to construct your own investment portfolio then what will be your
risk parameters?
INTERPRETATION
 40 respondents can invest in schemes where risk level is moderate
 38 respondents preferred to have moderately low investment instruments
 18 respondents can take moderately high risk investment options
14) As per your knowledge which investment gives highest return with longer period
of time?
INTERPRETATION
 As per the findings 62 respondents says Mutual fund gives higher return
 45 respondents says Equities and Debt Instuments gives higher return
 20 respondents believe that Bank deposits gve higher return
 Only 15 respondents says Post office and Governmen Securities gives higher return.

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FINDINGS AND CONCLUSIONS
FINDINGS
 The Maximum respondents are from age group of 20-30 out of which there are 45
respondents are salaried, 35 respondents are students and 20 respondents self-
employed working professionals.
 In the findings, it has been seen that the monthly income bracket between Rs. 20,000 -
Rs. 30,000 are comprising more than 60%, monthly income between Rs. 30,000 -
Rs. 60,000 are more than 25%.
 Out of 100 respondents, 42.5% of them save up to 10% of their income, 30% of them
save between 10 - 20% of income, 10% of them save between 20 - 30% of income
and 17.5% of them save 30% and above of their income
 The findings also revealed that the most sought investment avenue for investor is
Bank Deposits followed by Mutual Fund, Insurance and Gold.
 Out of the 100 respondents, 35 of them have extensive knowledge about Equity
Market, rest of them have average knowledge about it.
 As per the survey the most important parameter for investor who seeks for investment
is return on investment after that investor also concerned about knowing company
profile, low risk profile, credit given by credit rating agency and the least important
parameter is Lock in period.
 The primary goal for investment of the respondents are to get long term growth
followed by to generate cash flow to supplement regular income.
 Out of the 100 respondents, 65 people are saying mutual fund gives higher return
followed by equity and debt market and bank deposits.

Page | 37
CONCLUSIONS
 Investment in Mutual Fund requires the extensive knowledge about different investment
options available in the share market.
 Risk and return of a particular fund may differ from investor to investor. Different types
of investor have different views about the particular fund on the basis of time period of
investment, market risk, etc.
 Most of the respondents saying that for investing company’s profile have to be studied
which is very right because it gives the insight about what company is doing in which
sector it is, it also gives the futuristic approach about the company towards changing
business environment of competitiveness.
 Before going to any Mutual Fund investment, first the investor should know for what is
the purpose of investment, for that how much he/she can take risk, what will be the time
horizon for investment, etc.
 If investor is risk tolerant person and short-term perspective it is good to invest in the
Large-Caps companies’ securities.
 If investor is risk tolerant person and long-term perspective it is good to invest in the
Multi-Caps companies’ securities as Multi-caps companies’ scheme give optimum return
irrespective of market fluctuation.
 It is very much necessary to have a thorough reading about scheme related documents as
it gives the idea about where the investment is going to get invested.

Page | 38
RECOMMENDATION AND SUGGESTION
RECOMMENDATIONS
 The Mutual Fund Companies should do detail advertise about various Mutual Funds
related schemes so that awareness among the general public should increase.
 The company should adopt customer centric approach to get maximum number of
investor.
 Transparency between company and investors should be maintain so that investor –
company relation should be well maintained.
 The company’s stock recommendation should be unbiased irrespective of personal
benefit.
SUGGESTIONS
 Select the investments on the basis of economic grounds.
 Buy stock with a disparity and discrepancy between the situation of the firm - and the
expectations and appraisal of the public.
 Buy stocks in companies with potential for surprises.
 Take advantage of volatility before reaching a new equilibrium.
 Listen to rumors and tips, check for yourself.
 Don’t put trust in only one investment. It is like “putting all the eggs in one basket”.
This will help lessen the risk in the long term.
 The investor must select the right advisory body which is has sound knowledge about
the product which they are offering.
 Professionalized advisory is the most important feature to the investors.
Professionalized research, analysis which will be helpful for reducing any kind of risk
to overcome.

Page | 39
REFERANCE
BIBLIOGRAPHY:
 Security Analysis & Portfolio Management - Fishers & Jordon,
 Kulshreshtha C M, Mastering Mutual Funds -Opportunities & Risk Management for
the Individual Investor, New Delhi: Vision Books, 2011.
 Business standard and Economic Times Magazines.
 Aman Srivastava (2007). An Analysis of Behavior of Investors in India, ICFAI
Journal of Behavioral Finance.
WEBSITES:
 www.motilaloswal.com
 www.sebi.com
 www.google.com
 www.moneycontrol.com
 www.valueresearch.com
 www.investopedia.com/articles/mutualfund/05/MFhistory.asp
 www.mutualfundsresource.com/history/
 www.appuonline.com/mf/knowledge/industry.html

Page | 40
ANNEXURE
PERSONAL INFORMATION
 Name
 E-mail ID
 Age
 Occupation
 Monthly Income
1) What percentage of income do you save?
i. Less than 10%
ii. 10 – 20%
iii. 20 – 30%
iv. 30 – 40%
2) Have you invested your savings so far?
i. Yes
ii. No
3) Which of the following avenues have you opted for?
i. Bank Deposits
ii. Insurance
iii. Post Office
iv. Equities
v. Mutual Fund
vi. Real Estate
vii. Gold
4) I would describe my knowledge of Investment in Equity Market as
Scale of 1 to 5 is given where 1 is considered as very limited knowledge and 5 is considered
as Extensive Knowledge.

Page | 41
5) What do you consider the most important parameters while investing?
i. Company Profile
ii. Return on Investment
iii. Low risk factor
iv. Credit Rating
v. Lock in Period
6) What will be your primary goal for investment?
i. Children’s Marriage
ii. Expenses for Higher Education
iii. Long-Term Growth
iv. Generate cash flow to supplement regular income
7) What will be your Risk evaluating pattern while investment?
i. Study on Company’s Financial
ii. Research on Company’s Background
iii. Advice from current investor
iv. Advice from professional broking firm
8) How much of a temporary decline in the value of your investment could you tolerate?
(Annual Basis)
i. No Decline
ii. Less than 5%
iii. 5 – 10%
iv. 10 – 15%
v. More than 15%

Page | 42
9) How will you manage your Equity investment risk?
i. Investment in Diversified Instrument
ii. Investment through Professional
iii. Through Hedge Fund (Risk Diversified Funds)
iv. Dis-Invest all your Investment.
10) If you wish to construct your own investment portfolio then what will be your risk
parameters?
i. Low
ii. Moderately Low
iii. Moderate
iv. Moderately High
v. High
11) As per your knowledge which investment gives higher return with longer period of time?
i. Bank Deposits
ii. Mutual Funds
iii. Equities & Debt Instruments
iv. Post office
v. Government Securities

Risk management in mutual fund

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