Project Report

On

Mutual Funds

Study Conducted at:

BONANZA PORTFOLIO LTD.

JAIPUR

For Certificate in COSD,

Banking, Insurance and Equity Service

To

INTERNATIONAL COLLEGE FOR GIRLS

Submitted To: Submitted By:

Ms.Shubhra Gupta Shilpi Mathur

INTERNATIONAL COLLEGE FOR GIRLS

2008-09
 Table of Contents

1. Acknowledgement

2. Preface

3. Introduction

4. Review of Literature

5. Company Profile

6. Research Methodology

7. Findings and Analysis

7.1. Product Study

7.2. Customer Study

8. Conclusion

9. Appendix

10. Bibliography
1. Acknowledgement

I am grateful for all the guidance and help I have received from many sources
during the course of this project report.

This report would not be in the form today without the patience, guidance,
knowledge and direction of my guide, Ms.Shubhra Gupta. I would like to thank her
for her invaluable support and guidance throughout the preparation of this report
and for sparing her invaluable time and guiding me towards the right direction.

I would also like to thank Mayank Sir (Lecturer, ICG) for giving me the opportunity
to carry out a summer project and for extending invaluable help and time.

I would also like to thank Mr. Jitendra Sharma (Vice President, BONANZA)
for permitting me to conduct the study in their company and for extending all
possible support for completion of project.

I also wish to thank the staff of BONANZA for helping me in research and collection
of data throughout the course of the project.

Finally, I would also like to acknowledge the enthusiastic and inspiring support I
have received from the members of my family, and my friends without whom
completion of this project would not have been possible.
2. Preface

Having spent almost six weeks at BONANZA, working on the project I have

been able to gain knowledge about the organization and functioning of a

portfolio management firm, which has also given me immense practical

exposure and helped me develop technical and interpersonal skills. At the

same time it helped me gain an insight into what actually mutual fund and its

investment means.

Apart from the knowledge I gained from observing daily work procedure at

BONANZA, the summer training also helped me broaden my knowledge

regarding the Investment Sector.

During this tenure I studied the various products and services offered by the

company and also conducted a study over the customers reponse on the

same.

Objective of the study :-

 To get an insight knowledge about the Mutual Funds

 To know the mutual fund performance in present market

3. Introduction

Mutual Fund is an instrument of investing money. Nowadays, bank rates

have fallen down and are generally below the inflation rate. Therefore,
keeping large amounts of money in bank is not a wise option, as in real
terms the value of money decreases over a period of time.

One of the options is to invest the money in stock market. But a common
investor is not informed and competent enough to understand the
intricacies of stock market. This is where mutual funds come to the rescue.

A mutual fund is a group of investors operating through a fund manager to

purchase a diverse portfolio of stocks or bonds. Mutual funds are highly
cost efficient and very easy to invest in. By pooling money together in a
mutual fund, investors can purchase stocks or bonds with much lower
trading costs than if they tried to do it on their own. Also, one doesn't have
to figure out which stocks or bonds to buy. But the biggest advantage of
mutual funds is diversification.
4. Review of Literature

Types of mutual funds:

General Classification of Mutual Funds

Open-end Funds | Closed-end Funds

Open-end Funds
Funds that can sell and purchase units at any point in time are classified as
Open-end Funds. The fund size (corpus) of an open-end fund is variable
(keeps changing) because of continuous selling (to investors) and
repurchases (from the investors) by the fund. An open-end fund is not
required to keep selling new units to the investors at all times but is required
to always repurchase, when an investor wants to sell his units. The NAV of
an open-end fund is calculated every day.

Closed-end Funds
Funds that can sell a fixed number of units only during the New Fund Offer
(NFO) period are known as Closed-end Funds. The corpus of a Closed-end
Fund remains unchanged at all times. After the closure of the offer, buying
and redemption of units by the investors directly from the Funds is not
allowed. However, to protect the interests of the investors, SEBI provides
investors with two avenues to liquidate their positions:

1. Closed-end Funds are listed on the stock exchanges where investors

can buy/sell units from/to each other. The trading is generally done at
a discount to the NAV of the scheme. The NAV of a closed-end fund
is computed on a weekly basis (updated every Thursday).
2. Closed-end Funds may also offer "buy-back of units" to the unit
holders. In this case, the corpus of the Fund and its outstanding units
do get changed.
 Load Funds | No-load Funds

Load Funds
Mutual Funds incur various expenses on marketing, distribution, advertising,
portfolio churning, fund manager's salary etc. Many funds recover these
expenses from the investors in the form of load. These funds are known as
Load Funds. A load fund may impose following types of loads on the
investors:

 Entry Load - Also known as Front-end load, it refers to the load

charged to an investor at the time of his entry into a scheme. Entry
load is deducted from the investor's contribution amount to the fund.
 Exit Load - Also known as Back-end load, these charges are
imposed on an investor when he redeems his units (exits from the
scheme). Exit load is deducted from the redemption proceeds to an
outgoing investor.
 Deferred Load - Deferred load is charged to the scheme over a
period of time.
 Contingent Deferred Sales Charge (CDSC) - In some schemes, the
percentage of exit load reduces as the investor stays longer with the
fund. This type of load is known as Contingent Deferred Sales
Charge.

No-load Funds
All those funds that do not charge any of the above mentioned loads are
known as No-load Funds.

Tax-exempt Funds | Non-Tax-exempt Funds

Tax-exempt Funds
Funds that invest in securities free from tax are known as Tax-exempt
Funds. All open-end equity oriented funds are exempt from distribution tax
(tax for distributing income to investors). Long term capital gains and
dividend income in the hands of investors are tax-free.

Non-Tax-exempt Funds
Funds that invest in taxable securities are known as Non-Tax-exempt
Funds. In India, all funds, except open-end equity oriented funds are liable
to pay tax on distribution income. Profits arising out of sale of units by an
investor within 12 months of purchase are categorized as short-term capital
gains, which are taxable. Sale of units of an equity oriented fund is subject
to Securities Transaction Tax (STT). STT is deducted from the redemption
proceeds to an investor.
BROAD MUTUAL FUND TYPES
1. Equity Funds
Equity funds are considered to be the more risky funds as compared to other fund types,
but they also provide higher returns than other funds. It is advisable that an investor
looking to invest in an equity fund should invest for long term i.e. for 3 years or more.
There are different types of equity funds each falling into different risk bracket. In the
order of decreasing risk level, there are following types of equity funds:

a. Aggressive Growth Funds - In Aggressive Growth Funds, fund managers aspire

for maximum capital appreciation and invest in less researched shares of speculative
nature. Because of these speculative investments Aggressive Growth Funds become
more volatile and thus, are prone to higher risk than other equity funds.
b. Growth Funds - Growth Funds also invest for capital appreciation (with time
horizon of 3 to 5 years) but they are different from Aggressive Growth Funds in the sense
that they invest in companies that are expected to outperform the market in the future.
Without entirely adopting speculative strategies, Growth Funds invest in those companies
that are expected to post above average earnings in the future.
c. Speciality Funds - Speciality Funds have stated criteria for investments and their
portfolio comprises of only those companies that meet their criteria. Criteria for some
speciality funds could be to invest/not to invest in particular regions/companies. Speciality
funds are concentrated and thus, are comparatively riskier than diversified funds.. There
are following types of speciality funds:

 Sector Funds: Equity funds that invest in a particular sector/industry

of the market are known as Sector Funds. The exposure of these
funds is limited to a particular sector (say Information Technology,
Auto, Banking, Pharmaceuticals or Fast Moving Consumer Goods)
which is why they are more risky than equity funds that invest in
multiple sectors.
 Foreign Securities Funds: Foreign Securities Equity Funds have
the option to invest in one or more foreign companies. Foreign
securities funds achieve international diversification and hence they
are less risky than sector funds. However, foreign securities funds
are exposed to foreign exchange rate
  Mid-Cap or Small-Cap Funds: Funds that invest in companies
having lower market capitalization than large capitalization
companies are called Mid-Cap or Small-Cap Funds. Market
capitalization of Mid-Cap companies is less than that of big, blue chip
companies (less than Rs. 2500 crores but more than Rs. 500 crores)
and Small-Cap companies have market capitalization of less than
Rs. 500 crores. Market Capitalization of a company can be
calculated by multiplying the market price of the company's share by
the total number of its outstanding shares in the market. The shares
of Mid-Cap or Small-Cap Companies are not as liquid as of Large-
Cap Companies which gives rise to volatility in share prices of these
companies and consequently, investment gets risky.
 Option Income Funds*: While not yet available in India, Option
Income Funds write options on a large fraction of their portfolio.
Proper use of options can help to reduce volatility, which is otherwise
considered as a risky instrument. These funds invest in big, high
dividend yielding companies, and then sell options against their stock
positions, which generate stable income for investors.

d. Diversified Equity Funds - Except for a small portion of investment in liquid money
market, diversified equity funds invest mainly in equities without any concentration on a
particular sector(s). These funds are well diversified and reduce sector-specific or
company-specific risk. However, like all other funds diversified equity funds too are
exposed to equity market risk. One prominent type of diversified equity fund in India is
Equity Linked Savings Schemes (ELSS). As per the mandate, a minimum of 90% of
investments by ELSS should be in equities at all times. ELSS investors are eligible to
claim deduction from taxable income (up to Rs 1 lakh) at the time of filing the income tax
return. ELSS usually has a lock-in period and in case of any redemption by the investor
before the expiry of the lock-in period makes him liable to pay income tax on such
income(s) for which he may have received any tax exemption(s) in the past.
e. Equity Index Funds - Equity Index Funds have the objective to match the
performance of a specific stock market index. The portfolio of these funds comprises
of the same companies that form the index and is constituted in the same proportion
as the index. Equity index funds that follow broad indices (like S&P CNX Nifty,
Sensex) are less risky than equity index funds that follow narrow sectoral indices (like
BSEBANKEX or CNX Bank Index etc). Narrow indices are less diversified and
therefore, are more risky.
f. Value Funds - Value Funds invest in those companies that have sound
fundamentals and whose share prices are currently under-valued. The portfolio of these
funds comprises of shares that are trading at a low Price to Earning Ratio (Market Price
per Share / Earning per Share) and a low Market to Book Value (Fundamental Value)
Ratio. Value Funds may select companies from diversified sectors and are exposed to
lower risk level as compared to growth funds or speciality funds. Value stocks are
generally from cyclical industries (such as cement, steel, sugar etc.) which make them
volatile in the short-term. Therefore, it is advisable to invest in Value funds with a long-
term time horizon as risk in the long term, to a large extent, is reduced.
g. Equity Income or Dividend Yield Funds - The objective of Equity Income or
Dividend Yield Equity Funds is to generate high recurring income and steady capital
appreciation for investors by investing in those companies which issue high dividends
(such as Power or Utility companies whose share prices fluctuate comparatively lesser
than other companies' share prices). Equity Income or Dividend Yield Equity Funds are
generally exposed to the lowest risk level as compared to other equity funds.
2. Debt / Income Funds
Funds that invest in medium to long-term debt instruments issued by private companies,
banks, financial institutions, governments and other entities belonging to various sectors
(like infrastructure companies etc.) are known as Debt / Income Funds. Debt funds are
low risk profile funds that seek to generate fixed current income (and not capital
appreciation) to investors. In order to ensure regular income to investors, debt (or
income) funds distribute large fraction of their surplus to investors. Although debt
securities are generally less risky than equities, they are subject to credit risk (risk of
default) by the issuer at the time of interest or principal payment. To minimize the risk of
default, debt funds usually invest in securities from issuers who are rated by credit rating
agencies and are considered to be of "Investment Grade". Debt funds that target high
returns are more risky. Based on different investment objectives, there can be following
types of debt funds:

a. Diversified Debt Funds - Debt funds that invest in all securities issued by entities
belonging to all sectors of the market are known as diversified debt funds. The best
feature of diversified debt funds is that investments are properly diversified into all sectors
which results in risk reduction. Any loss incurred, on account of default by a debt issuer,
is shared by all investors which further reduces risk for an individual investor.
b. Focused Debt Funds* - Unlike diversified debt funds, focused debt funds are
narrow focus funds that are confined to investments in selective debt securities, issued
by companies of a specific sector or industry or origin. Some examples of focused debt
funds are sector, specialized and offshore debt funds, funds that invest only in Tax Free
Infrastructure or Municipal Bonds. Because of their narrow orientation, focused debt
funds are more risky as compared to diversified debt funds. Although not yet available in
India, these funds are conceivable and may be offered to investors very soon.
c. High Yield Debt funds - As we now understand that risk of default is present in all
debt funds, and therefore, debt funds generally try to minimize the risk of default by
investing in securities issued by only those borrowers who are considered to be of
"investment grade". But, High Yield Debt Funds adopt a different strategy and prefer
securities issued by those issuers who are considered to be of "below investment grade".
The motive behind adopting this sort of risky strategy is to earn higher interest returns
from these issuers. These funds are more volatile and bear higher default risk, although
they may earn at times higher returns for investors.

d. Assured Return Funds - Although it is not necessary that a fund will meet its
objectives or provide assured returns to investors, but there can be funds that come with
a lock-in period and offer assurance of annual returns to investors during the lock-in
period. Any shortfall in returns is suffered by the sponsors or the Asset Management
Companies (AMCs). These funds are generally debt funds and provide investors with a
low-risk investment opportunity. However, the security of investments depends upon the
net worth of the guarantor (whose name is specified in advance on the offer document).
To safeguard the interests of investors, SEBI permits only those funds to offer assured
return schemes whose sponsors have adequate net-worth to guarantee returns in the
future. In the past, UTI had offered assured return schemes (i.e. Monthly Income Plans of
UTI) that assured specified returns to investors in the future. UTI was not able to fulfill its
promises and faced large shortfalls in returns. Eventually, government had to intervene
and took over UTI's payment obligations on itself. Currently, no AMC in India offers
assured return schemes to investors, though possible.
e. Fixed Term Plan Series - Fixed Term Plan Series usually are closed-end schemes
having short term maturity period (of less than one year) that offer a series of plans and
issue units to investors at regular intervals. Unlike closed-end funds, fixed term plans are
not listed on the exchanges. Fixed term plan series usually invest in debt / income
schemes and target short-term investors. The objective of fixed term plan schemes is to
gratify investors by generating some expected returns in a short period.

2. Gilt Funds
Also known as Government Securities in India, Gilt Funds invest in government papers
(named dated securities) having medium to long term maturity period. Issued by the
Government of India, these investments have little credit risk (risk of default) and provide
safety of principal to the investors. However, like all debt funds, gilt funds too are
exposed to interest rate risk. Interest rates and prices of debt securities are inversely
related and any change in the interest rates results in a change in the NAV of debt/gilt
funds in an opposite direction.
4. Money Market / Liquid Funds
Money market / liquid funds invest in short-term (maturing within one year) interest
bearing debt instruments. These securities are highly liquid and provide safety of
investment, thus making money market / liquid funds the safest investment option when
compared with other mutual fund types. However, even money market / liquid funds are
exposed to the interest rate risk. The typical investment options for liquid funds include
Treasury Bills (issued by governments), Commercial papers (issued by companies) and
Certificates of Deposit (issued by banks).

5. Hybrid Funds
As the name suggests, hybrid funds are those funds whose portfolio includes a blend of
equities, debts and money market securities. Hybrid funds have an equal proportion of
debt and equity in their portfolio. There are following types of hybrid funds in India:

a. Balanced Funds - The portfolio of balanced funds include assets like debt
securities, convertible securities, and equity and preference shares held in a relatively
equal proportion. The objectives of balanced funds are to reward investors with a regular
income, moderate capital appreciation and at the same time minimizing the risk of capital
erosion. Balanced funds are appropriate for conservative investors having a long term
investment horizon.
b. Growth-and-Income Funds - Funds that combine features of growth funds and
income funds are known as Growth-and-Income Funds. These funds invest in companies
having potential for capital appreciation and those known for issuing high dividends. The
level of risks involved in these funds is lower than growth funds and higher than income
funds.
c. Asset Allocation Funds - Mutual funds may invest in financial assets like equity,
debt, money market or non-financial (physical) assets like real estate, commodities etc..
Asset allocation funds adopt a variable asset allocation strategy that allows fund
managers to switch over from one asset class to another at any time depending upon
their outlook for specific markets. In other words, fund managers may switch over to
equity if they expect equity market to provide good returns and switch over to debt if they
expect debt market to provide better returns. It should be noted that switching over from
one asset class to another is a decision taken by the fund manager on the basis of his
own judgment and understanding of specific markets, and therefore, the success of these
funds depends upon the skill of a fund manager in anticipating market trends.

5. Commodity Funds
Those funds that focus on investing in different commodities (like metals, food grains,
crude oil etc.) or commodity companies or commodity futures contracts are termed as
Commodity Funds. A commodity fund that invests in a single commodity or a group of
commodities is a specialized commodity fund and a commodity fund that invests in all
available commodities is a diversified commodity fund and bears less risk than a
specialized commodity fund. "Precious Metals Fund" and Gold Funds (that invest in gold,
gold futures or shares of gold mines) are common examples of commodity funds.

7. Real Estate Funds

Funds that invest directly in real estate or lend to real estate developers or invest in
shares/securitized assets of housing finance companies, are known as Specialized Real
Estate Funds. The objective of these funds may be to generate regular income for
investors or capital appreciation.

8. Exchange Traded Funds (ETF)

Exchange Traded Funds provide investors with combined benefits of a closed-end and
an open-end mutual fund. Exchange Traded Funds follow stock market indices and are
traded on stock exchanges like a single stock at index linked prices. The biggest
advantage offered by these funds is that they offer diversification, flexibility of holding a
single share (tradable at index linked prices) at the same time. Recently introduced in
India, these funds are quite popular abroad.
9. Fund of Funds

Mutual funds that do not invest in financial or physical assets, but do invest in other
mutual fund schemes offered by different AMCs, are known as Fund of Funds. Fund of
Funds maintain a portfolio comprising of units of other mutual fund schemes, just like
conventional mutual funds maintain a portfolio comprising of equity/debt/money market
instruments or non financial assets. Fund of Funds provide investors with an added
advantage of diversifying into different mutual fund schemes with even a small amount of
investment, which further helps in diversification of risks. However, the expenses of Fund
of Funds are quite high on account of compounding expenses of investments into
different mutual fund schemes.

* Funds not yet available in India

5. Company Profile

Bonanza a leading Financial Services & Brokerage House working diligently

since 1994 can be described in a single word as a "Financial Powerhouse".
With acknowledged industry leadership in execution and clearing services on
Exchange Traded Derivatives and cash market products. Bonanza has spread
its trustworthy tentacles all over the country with more than 1025 outlets
spread across 340 cities.

It provides an extensive smorgasboard of services in

equity,commodities,currency derivatives, wealth management,distribution of
third party products etc.

Keeping in par with the modern tech-savvy world , Bonanza makes an

integrated and innovative use of technology;it also enables its clients to trade
online as well as offline and the strategic tie-ups with the latest technology
partners has earned Bonanza this prestigious place in one of the top
brokerage houses in the country.Client -focused philosophy backed by
memberships of all principal Indian Stock and Commodity Exchanges makes
Bonanza stand apart from its competitors and a preferred service provider in
the industry for value-based services.

To add to our ever-growing achievements,a study by Dun and Bradstreet has

rated Bonanza as the
sixth largest broking house in terms of equity terminal listings in the country.If
this is not enough , Bonanza Portfolio Ltd was recently nominated amongest
the Top 3 Retail Finacial Advisors of the country in an event conducted by
CNBC-TV18 and OptiMix Financial Advisor Awards 2008.

Also Bonanza has been awarded by BSE the "Major Volume driver for the
year 2004-2005,2006-2007 and 2008-2009".
Bonanza’s Vision

To be one of the most trusted and globally reputed financial distribution

companies.

Brokerage Firm Number of Clients

Indiabulls(4) 320,000+
Kotak Securities(3) 220,000
Motilal Oswal(1) 200,000
SSKI(6) 190,000
IL&FS Investsmart(7) 80,000
India Infoline(2) 75,000
Bonanza(5) 125,000
SERVICES OFFERED BY BONANZA
6. Research Methodology

Research Design

This research is based on the following:

I. Customer Study- First, the customers were studied based on their profile,
behavior and perceptions about Bonanza and the services offered. In addition, a
study on the repeat customers was conducted .

II. Service Study- Different services offered in BONANZA, and the data used for the
study is gathered from primary and secondary sources.

Data Collection

The research is primarily based on primary data and supplemented with secondary
data. The tools used for data collection are:

a) Primary Data

Questionnaire: Questionnaire is designed mainly to assess the response of the

customers regarding the services offered by the company. All questions included
are close ended. The sample size for primary data is 50.

Observations: This is done mainly to assess the customer flow and pattern of
invesrtment.

b) Secondary Data
1. Books and brochures of the company
2. Customer records
3. Websites
7. Findings and Analysis

7.1 Product/Service study

7.1.1 Mutual Fund investment schemes available with BONANZA

Bonanza offers mutual funds in the following categories :-

1. Debt mutual fund

2. Equity mutual fund
3. Gilt mutual fund
4. Liquid mutual fund
5. Special fund
6. Income fund
7. Balanced fund
8. ELSS
9. Sector fund
10. Index fund

The mutual funds mentioned above are offered with three options:-

1. Open ended
2. Close ended
3. Interval scheme

At Bonanza mutual funds of various companies like AIG, Bharti AXA, Birla Sunlife,
Kotak Mahindra, Goldman Sachs, Morgan Stanley, Reliance, Religare, JM
Financial, UTI, etc.are offered.
7.1.2 Risk Heirarchy of Different Mutual Funds

Thus, different mutual fund schemes are exposed to different levels of risk and investors
should know the level of risks associated with these schemes before investing. The
graphical representation hereunder provides a clearer picture of the relationship between
mutual funds and levels of risk associated with these funds:
 7.1.3 Assets Under Management as on September 30, 2006

Type and Category wise

Categories of Open End Close End Total % of Total

funds
Income 34,589 37,515 72,104 25
46,402 7,731 54,133 27
Growth 92,594 8,590 1,01,184 35
57,736 2,083 59,819 29
Balanced 7,079 832 7,911 3
5,432 753 6,185 3
Liquid/Money 1,00,622 - 1,00,622 34
Market 74,058 - 74,058 37
Gilt 2,133 - 2,133 1
3,893 - 3,893 2
ELSS 5,807 1,445 7,252 2
2,068 1,513 3,581 2
Total 2,42,824 48,382 2,91,206 100
1,89,589 12,080 2,01,669 100

 Figures in red are of september 2005.

40
37
35
34
35

29
30
27
25
25

20
as on sept. 30, 2005
as on sept. 30, 2006
15

10

5 3 3
2 2 2
1

0
7.1.4 Comparision with other investment options

1. ETFs

Exchange-traded funds (ETFs) are the security type that is most similar to mutual
funds. First created in the early 1990s, ETFs are index funds that trade like stocks.
They offer the broad diversification of mutual funds with the instant liquidity of
stocks: ETFs can be bought and sold throughout the trading day, unlike mutual
funds. In addition, they often have low expense ratios, some of which are even
lower than those of traditional index funds.

Why Buy Mutual Funds Instead of ETFs?

There are several considerations to take into account when deciding between
mutual funds and ETFs:

 Cost: Transaction costs, also known as commissions, are fees investors pay
every time they buy or sell a security. Though you can buy no-load mutual funds
for free from most fund companies, you’ll pay a commission each time you buy
or sell an ETF. If you’d like to buy your investments gradually, in stages, without
paying commissions each time, mutual funds are likely a better choice than
ETFs.

 Selection: Though ETF offerings are multiplying quickly, in some areas they don’t
yet rival the selection offered by the thousands of mutual funds on the market. If
you’re looking for a specific type of investment, your only choice may be a
mutual fund.

 Flexibility: Like index funds, ETFs track the performance of a fixed selection of
securities. As such, they lack the flexibility to respond to changes in the
marketplace that affect the value of the particular securities they hold. Actively-
managed mutual funds may be your best choice if you prefer to own investments
that can adapt constantly as markets change. On the other hand, large mutual
funds are often unable to effectively shift their holdings in response to changing
market conditions. Mutual funds also sometimes have minimum holding
periods, which penalize you for selling your fund shares until a certain amount of
time has passed, ranging from six months to several years.


 2. Individual Stocks

Though mutual funds make it very convenient and easy to own hundreds of
individual stocks with just one investment, they require you to give up control of the
specific stocks you own. There are two reasons why surrendering control of the
individual stocks you own might lower your returns:

 Capital gains taxes: You’ll incur capital gains tax liabilities just from holding a
mutual fund, even if you later sell the fund at a loss. The amount of capital gains
tax liability you incur is up to your fund manager—not you—because he or she
decides how much stock to sell and how often to sell it.

 Bad picks: Some mutual funds place a sizeable portion of their holdings in just a
few stocks. If one of those stocks plummets in value, the fund will also.
Conversely, if one of the fund’s stocks shoots up in value, you won’t have the
freedom to sell it.

In addition, since stocks don’t charge investors expense ratios, you pay only the
transaction costs required to buy and sell. That means if a stock increases in value
by 10%, you’ll actually receive a 10% return on your investment, minus whatever
commission costs you’ve incurred and taxes you owe on your profit.
Why Buy Stock Funds Instead of Individual Stocks?
There are several reasons why you may want to own stock funds instead of stocks:

 Diversification: A portfolio of several stock mutual funds, each of which holds a

basket of many different stocks, is more diversified than a portfolio that contains
only a few individual stocks. More diversification means less risk.

 Volatility: Volatility refers to the amount that an investment’s value tends to

fluctuate investment’s value. Generally, individual stocks are much more volatile
than mutual funds. If volatility makes you uneasy, mutual funds are a better
choice than stocks.

 Cost: With certain exceptions, you can usually buy mutual funds without incurring
any transaction costs. Each time you buy or sell a stock, you’ll pay commissions.

 Convenience: Mutual funds make it easy to build a balanced portfolio of

investments with minimal time or effort. To build a balanced portfolio of individual
stocks, you’d need to spend hours researching each stock before you buy and
then monitoring your holdings on at least a weekly basis thereafter.
3. Individual Bonds

Individual bonds are a compelling investment for investors looking for a steady
stream of income: you buy a bond with a certain interest rate and maturity, or
duration, and you then receive that interest for the life of the bond. If you buy
$1,000 of a bond with a 5% interest rate and a maturity of 10 years, you’ll receive
$50 per year for ten years. The price of the bond can fluctuate until its date of
maturity, but if you hold the bond until it matures, you’ll receive your original
principal back in full. If you sell the bond before it matures, you may receive more
or less than the price you originally paid and your interest payments will cease.

Why Buy Bond Funds Instead of Individual Bonds?

There are two main reasons to own bond funds instead of individual bonds:

 Diversification: Since bond funds usually hold many different bonds of a given
type, you can diversify instantly by buying just a few funds, each of which
specializes in a different type of bond.

 Convenience: By buying one bond fund, such as the Fidelity Total Bond Market
Fund®, you can get instant access to a broad assortment of bonds in just one
investment, complete with a yield roughly equal to the average yield of all the
bonds in the fund. Using a bond fund is not only more convenient, but also less
time consuming and expensive, than buying a portfolio of individual bonds.
7.1.5 SWOT Analysis of Mutual Funds :

STRENGTHS OF MUTUAL FUNDS

S.
Strengths Particulars
No.

Mutual Funds invest in a well-diversified portfolio

Portfolio of securities which enables investor to hold a
1.
Diversification diversified investment portfolio (whether the
amount of investment is big or small).

Fund manager undergoes through various

research works and has better investment
Professional
2. management skills which ensure higher returns
Management
to the investor than what he can manage on his
own.

Investors acquire a diversified portfolio of

securities even with a small investment in a
3. Less Risk
Mutual Fund. The risk in a diversified portfolio is
lesser than investing in merely 2 or 3 securities.

Due to the economies of scale (benefits of larger

Low
volumes), mutual funds pay lesser transaction
4. Transaction
costs. These benefits are passed on to the
Costs
investors.

An investor may not be able to sell some of the

shares held by him very easily and quickly,
5. Liquidity
whereas units of a mutual fund are far more
liquid.
 Mutual funds provide investors with various
schemes with different investment objectives.
Investors have the option of investing in a
Choice of
6. scheme having a correlation between its
Schemes
investment objectives and their own financial
goals. These schemes further have different
plans/options

Funds provide investors with updated

information pertaining to the markets and the
7. Transparency
schemes. All material facts are disclosed to
investors as required by the regulator.

Investors also benefit from the convenience and

flexibility offered by Mutual Funds. Investors can
switch their holdings from a debt scheme to an
8. Flexibility equity scheme and vice-versa. Option of
systematic (at regular intervals) investment and
withdrawal is also offered to the investors in
most open-end schemes.

Mutual Fund industry is part of a well-regulated

investment environment where the interests of
9. Safety the investors are protected by the regulator. All
funds are registered with SEBI and complete
transparency is forced.

WEAKNESSES OF MUTUAL FUNDS

S.
Weaknesses Particulars
No.

Costs Control Investor has to pay investment management fees

Not in the and fund distribution costs as a percentage of the
1.
Hands of an value of his investments (as long as he holds the
Investor units), irrespective of the performance of the fund.

The portfolio of securities in which a fund invests is

a decision taken by the fund manager. Investors
No Customized have no right to interfere in the decision making
2.
Portfolios process of a fund manager, which some investors
find as a constraint in achieving their financial
objectives.

Many investors find it difficult to select one option

Difficulty in
from the plethora of funds/schemes/plans available.
Selecting a
3. For this, they may have to take advice from financial
Suitable Fund
planners in order to invest in the right fund to
Scheme
achieve their objectives.

OPPURTUNITIES OF MUTUAL FUNDS

The size of the mutual funds industry is expected to be worth Rs. 4 lakh crores by
2010 from its current level of over Rs. 2 lakh crores, according to a study conducted
by the Associated Chambers of Commerce and Industry of India (Assocham).

The study says that investors in future would prefer mutual funds for their
investment destination rather than choosing to park their funds in stock markets
because of safer returns and lower degree of risk as compared to other markets.

The Assocham study has the compilation of observations made by over 210
investors across the country in which over 80 per cent have exuded confidence that
the volumes of the Indian mutual funds industry will keep flourishing in future. In
1987, its size was Rs.1,000 crores, which went up to Rs. 4,100 crores in 1991 and
subsequently touched a figure of Rs.72,000 crores in 1998. Since then this figure
has kept ballooning, revealing the efficiency of growth in the mutual fund industry.

The study says that mutual funds would be one of the major instruments of wealth
creation and wealth saving in the years to come, giving positive results. The
consistency in the performance of mutual funds has been a major factor that has
attracted many investors. The Indian mutual funds industry has been growing at a
healthy pace of 16.68 per cent for the past eight years and the trend will move
further.

The presence of intelligent investors has already made the investment market
scenario fiercely competitive, with in increased number of high-yielding investment
opportunities. The industry has also witnessed several mergers and acquisitions.

THREATS TO MUTUAL FUNDS

 1.The Indian mutual fund industry has traditionally been faced with an unstable
asset composition, a small geographically skewed retail investor base, and a
relatively insignificant share of household savings.

2.The prevailing incentive models in non-proprietary intermediation have imposed

three serious threats to mutual funds operating in India. The first is the captive
market syndrome where commissioned agents depress both AMC margins and
investor returns by demanding high front-end charges and trailing commissions.
The second is an escalation in churning practices. The third is distributor disinterest
in sales to potential SIP investors. These front-end inefficiencies flow back to AMCs
in the form of higher costs, lower profits and erratic investor behaviour.

3. Smaller retail investors traditionally have been offered a limited range of

investment options and most household savings have been channeled into either
low yielding bank deposits or to life insurance policies. This has produced what is,
for the moment at least, a low risk appetite in the minds of many small investors.

4. Interest rate subsidies offered by the government as a back door method of

selling government paper through various savings schemes offered by India Post
have not helped either as they have herded a significant share of household
savings in that direction. And finally, the mandatory publicly managed pension and
provident funds have consumed over US $50 billion of stable and long-term
household savings.

5. In all of this, the mutual fund industry itself has a large part of the responsibility
for the inertia as the various mutual fund players are yet to come together to more
effectively promote the industry as a whole. As a result, mutual fund investment
opportunities have yet to come onto the savings radar of most individuals with
incomes in India as nearly 90 percent of them do not know that mutual funds exist.
Of those who are aware, over 30 per cent could not recall even a single mutual fund
brand. The fact that the mutual fund investor base is small therefore can be pinned
substantially to this factor alone.

7.2 Customer Study

Figure 1
 5
10

41

Businessman
Employee
Students
Other

44

The above chart shows the occupation of people who are the customers of
BONANZA.
The maximum is the number of businessman and employees and least being the
students and other professionals.
.

Figure 2

11

28 To built a corpus for

retirement
15 To save for children
education/marriage
To provide for medical
emergencies
To provide for family
14 financial security
To create wealth
32

The above chart makes it is clear that the major reasons of investment are to
provide for family financial security and to create wealth succeded by reasons like
corpus for retirement and savings for children education/marriage.

Figure 3
 70

60 58

50

40

30
22
20
20

10

0
YES NO CANT SAY

The above chart shows that most of the customers are likely to suggest Bonanza to
others and that can hence prove to be a good source of mouth publicity.

Figure 4

20

45 Friends
Relatives
Media
Other Sources

30

The above chart shows that most friends and relatives are the most popular source
through which customers come to know about BONANAZA.

Figure 5
 Customer Response

70

60

50

40 68

30

20
20
12
10

0
Adequate Inadequate Cant Say

The above chart shows that the response of most of the customers is positive
regarding services provided by BONANZA.

8. Conclusion
From the above analysis we can see that the mutual fund industry is an up and coming
industry. They are the best form of investment since they provide good returns combined
with lesser risk. They offer diversified investment options to the customers with
professional management. The transaction costs are reduced and there is transparency in
operations.

Also the oppurtunities in mutual funds are varied. It is an up and coming market. With the
economy recovering from the recession, it is an ideal time to invest in mutual funds. The
economy is expected to grow from here on out which will result in higher returns to the
investors.

Although there are threats present for the mutual fund industry, they are being overcome
day- by- day. Thus we can be sure that the mutual fund industry will continue to grow.

9. Appendix
9.1 Chart depicting number of Clients Bonanza deals as compared to other brokerage
firms

Brokerage Firm Number of Clients

Indiabulls 320,000
Kotak Securities 220,000
Motilal Oswal 200,000
SSKI 190,000
IL&FS Investsmart 80,000
India Infoline 75,000
Bonanza 125,000

Number of Clients
350,000 320,000

300,000

250,000 220,000
200,000 190,000
200,000
125,000
150,000
80,000 75,000 Number of Clients
100,000

50,000

0
ls es l KI t e a
bul r iti swa SS m
ar
olin anz
di
a cu lal
O sts In
f
Bo
n
In k Se ti n ve di
a
ta o SI In
M
Ko F
IL&
 Questionnaire

1. NAME –
2. AGE –
3. ADDRESS –
4. TEL. NO. –
9.2 Questinnaire
5. E-mail ID –
6. OCCUPATION
a. Employee b. Business c. Student d. Others
7. What are your reasons for investmant?

a. To built a corpus for retirement

b. To save for children education/marriage
c. To provide for medical emergencies
d. To provide for family financial security
e. To create wealth

8. You got to know about Bonanza through.

a. Friends
b. Relatives
c. Media
d. Other sources
9. Your opinion regarding products and services offered by Bonanza
a. Adequate
b. Inadequate
c. Can’t say

10. Would you recommend Bonanza to others?

a. Yes
b. No
c. Can’t say
10. Bibliography

1. www.amfiindia.com

2. www.bonanzaonline.com

3. www.morningstar.com

4. www.researchandmarkets.com

5. www.sbidfhi.com

6. www.thehindubusinessline.com

7. www.mutualfundsindi.com

8. www.economywatch.com

9. www.businessweek.com

10. www.equitybulls.com

11. Perspective, 15th june 2009, vol.2, issue 6.

12. Mutual Interest, january 2009 issue.

13. Fundamentals, may 2009 issue.

14. DWS Investments Pulse, march 2009 issue.